Midstream Energy Monthly Report | May

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• AEDW constituents largely maintained their recent dividends at prior levels, but some of the largest names in the index by weighting announced increases, including three of the top ten constituents.          
• Midstream earnings season got off to a solid start as companies largely exceeded expectations, with multiple names raising 2021 financial guidance.

Alerian Midstream Energy Dividend Index (AEDW)

Performance

Dividend Yield

Past performance is no guarantee of future performance. Source: Alerian *12-month figures based on 30.04.20 – 30.04.21

Index yield annualizes the most recent dividend announcement for each constituent and takes into account current index weightings.

Performance Review

• April: AEDW 5.96%   
• WTI oil prices increased 7.47% in April.

Yield

The current yield for AEDW is 7.52%*, which is in line with the five-year average of 7.57%.

What has driven this performance?

The Midstream energy ETF gained in April as companies began to announce their quarterly dividends and initial 1Q21 earnings results exceeded expectations. Some of the large names reporting in April beat consensus expectations and raised financial guidance for the year. Oil prices saw a sustained upward trend as demand prospects for the year improved on a stronger economic outlook for 2021. Energy equities were flat to down despite the gains in oil prices, largely underperforming ahead of earnings announcements. The Energy Select Sector Index (IXE) gained 0.69% in April on a total-return basis, noticeably lagging the 5.96% increase in AEDW for the month. Similarly, AEDW significantly outperformed the Stoxx Europe 600 Oil and Gas Index (SXEP), which was down 3.38%, on a total-return basis for the month of April. Even with sizable gains since November, AEDW was trading at 10.1x consensus 2022 EBITDA estimates at the end of April compared to a historical (ten-year) average EV/EBITDA multiple for midstream of ~12.0x.

Current/past performance is no guarantee of future performance* as of 30.04.21 Source of all data: Alerian, Bloomberg

MMLP Performance Table

As of 28.02.21

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such a strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Alerian, HANetf. Data as of 30/04/21.

Industry News

Dividends were largely steady with some large names providing growth.

ESW Q/Q Dividends: Steady Trend Continues for 1Q21

For illustrative purposes only. Past performance is no guarantee of future performance. Weightings as of April 30, 2021. IPL CN, KEY CN, and PPL CN pay monthly dividends. For these names, dividends for April 2021 were compared with January 2021. Source: Alerian, Company Reports as of April 30, 2021

AEDW constituents largely maintained their payouts for 1Q21 (those dividends paid in 2Q21 based on 1Q21 performance), with some of the largest names in the index by weighting announcing growth. In total, five constituents raised their 1Q21 dividend, including three of the top ten constituents—TC Energy Corporation (TRP CN) by 7.4%, Kinder Morgan (KMI) by 3%, and Cheniere Energy Partners LP (CQP) by 0.7%. These three constituents account for 23.0% of the index weighting. Western Midstream Partners LP (WES), a 1.9% weight, and Gibson Energy Inc (GEI CN), a 0.6% weight, also grew their 1Q21 dividends by 1.3% and 2.9% respectively. TRP CN, KMI, and GEI CN had previously guided to dividend increases. Antero Midstream (AM), a 2.1% weight in AEDW and the only constituent to reduce its dividend, saw a 26.8% reduction consistent with the company’s plans announced in February. Nonetheless, recent dividend increases help add confidence to midstream income even as yields remain above other income-oriented investment options. All weightings are as of 30 April. Past performance is no guarantee of future performance. Source: Alerian

Constituent News

Kinder Morgan (KMI) reported 1Q21 results that exceeded consensus EBITDA expectations by $1 billion as positive pricing impacts from extreme winter weather drove a huge beat. KMI raised 2021 EBITDA guidance by $820 million at the midpoint and also delivered a 3% dividend increase consistent with past guidance.[1]

ONEOK (OKE) reported strong results, beating EBITDA estimates by $89 million driven by pricing benefits from the winter storm and demand improvements in the base business. OKE raised the midpoint of 2021 EBITDA guidance by $150 million or 5% to include tailwinds from a stronger macro energy environment along with the higher marketing profits from the winter storm.[2]

Private Equity Transactions Add Confidence to Outlook. Private equity transactions have served as a catalyst for the space in the past, providing important valuation markers and validation for the multi-year outlook for the midstream business model. While deal activity was muted amid the volatile backdrop in 2020, there have been a few transactions in 2021 as the macro environment has steadied. In early April Sempra Energy (SRE, not in AEDW) announced the sale of a 20% stake in Sempra Infrastructure Partners to KKR for $3.37 billion.[3] In late April, AEDW constituent Magellan Midstream Partners (MMP) announced the sale of half of its interest in the Pasadena Marine Terminal joint venture to an undisclosed buyer for $270 million with potential use of proceeds including buybacks.[4] These transactions help highlight the long-term value of midstream assets and the stable cash flows generated by these assets. Read More

Outlook

After the severe oil demand destruction associated with COVID-19 in 2020, the economic outlook for 2021 is becoming increasingly positive, supporting upward revisions to oil demand forecasts. Specifically, the International Energy Agency (IEA) raised its forecast for 2021 oil demand by 230,000 barrels per day in April citing recent increases to global GDP growth estimates for 2021 and 2022 by the International Monetary Fund.[5] Energy, including midstream energy infrastructure, clearly stands to benefit from an improved outlook for the global economy and oil demand. In the near-term, tightening oil supplies have boosted oil prices this year (WTI oil up over 31% YTD through April), which has helped make energy the best-performing sector in 2021 despite energy broadly trading flat to down this month, even as midstream notched notable gains. The reflation trade fuelled by expectations for economic growth and inflation concerns has also benefitted energy, including midstream. While these macro tailwinds should be broadly supportive, midstream energy infrastructure stands out from the rest of the energy sector for its generous income, free cash flow potential, and buybacks.  Midstream yields remain attractive with recent dividend increases highlighting the favourable outlook for income from this space. Regardless of the commodity price environment, midstream companies are poised to generate meaningful free cash flow in 2021, with many names expected to have excess cash after dividends.  To this end, several companies initiated buyback programs in 2020, which could be an added tailwind for midstream equities in 2021. Approximately half of AEDW by weighting has buyback authorizations in place. Midstream energy infrastructure is well positioned to provide attractive income to investors with the potential for total return as well.

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