Midstream Energy Monthly Report | July
- At the end of June, the underlying index for our oil and gas ETF, AEDW, was yielding 6.94%.
Notably, investment-grade companies represented 83.17% of the index by
- Private equity involvement picked up in June, highlighting
the value proposition of the midstream space as AEDW constituents sold non-core
assets at attractive valuations to increase financial flexibility and optimize asset
- Midstream made strides on the ESG front with a
handful of AEDW constituents announcing clean energy projects and innovative
technologies to monitor and reduce emissions.
- June: AEDW 3.55%
- WTI oil prices increased 10.78% in
The current yield for AEDW is 6.94% (as of 30.06.2021), which is in line
with the five-year average of 7.57%.
Midstream Energy Dividend Index (AEDW)
Past performance is no guarantee
of future performance.
*12-month figures based on 30.06.20
Index yield annualizes the most recent dividend announcement for each
constituent and considers current index weightings.
What has driven this performance?
Midstream energy infrastructure gained in June as a handful
of key names announced selective asset divestures at attractive multiples,
highlighting the value of midstream assets. Oil prices rose steadily to their
highest levels since 2018 as higher demand into the summer travel season was
met with ongoing production restraint. Midstream and energy stocks traded in
tandem with oil prices the first half of the month, posting yearly highs before
diverging on selling pressures the second half of June. The Energy Select
Sector Index (IXE) gained 4.30% in May on a total-return basis, slightly outperforming
AEDW’s 3.30% monthly increase.
AEDW, the underlying index of our oil and gas ETF, significantly outperformed the Stoxx Europe 600 Oil and
Gas Index (SXEP), which was up 2.00% on a total-return basis for the month of May.
Even after nine consecutive months of positive performance, AEDW was trading at
10.3x consensus 2022 EBITDA estimates at the end of May compared to a
historical (ten-year) average EV/EBITDA multiple for midstream of ~12.1x.
Current/past performance is no guarantee of
future performance *as
all data: Alerian, Bloomberg
MMLP Performance Table (As of 30.06.21)
Alerian Midstream Energy Dividend UCITS ETF
Alerian Midstream Energy Dividend Index (NTR)
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 30/06/21.
M&A and private equity involvement picks up in June. More than $3 billion in assets were sold by
midstream companies in transactions announced this month. Notably, the midstream
space is leveraging increased private equity interest and a favourable energy
environment to selectively divest assets at attractive valuations with the view
of improving financial flexibility, enhancing shareholder returns, and advancing
long-term objectives. Following the transactions
that took place earlier in the year, additional private equity involvement
highlights the value of midstream assets and adds confidence to the multi-year
outlook (read more here).
Midstream companies make progress on ESG and energy
The Williams Company (WMB) and Microsoft (MSFT)
announced their collaboration to explore ways in which digital technology and
innovation can assist WMB through the energy transition—with the aim to unlock
new business models and create value on the path towards net zero. The two
companies will explore opportunities around hydrogen, renewable gas, carbon
capture utilization and storage, and energy storage solutions. 
Pembina Pipeline (PPL CN) and TC Energy (TRP CN) announced
their plan to jointly develop a large-scale carbon transportation and
sequestration system in Alberta to transport more than 20 million tons of carbon
dioxide (CO2) annually to reduce emissions and help achieve Canada’s climate
targets. The project combines PPL’s and TRP’s industry experience and leverages
their existing infrastructure to lay down the backbone for Alberta’s carbon
capture utilisation and storage industry. 
Enlink Midstream (ENLC), alongside increasing its
2021 yearly guidance, announced the formation of the Enlink Carbon Solutions
Group. The new segment will serve to identify
energy transition opportunities, with a particular focus around carbon capture,
utilization, and sequestration. 
The economic outlook remains on solid footing as greater
vaccine distribution, falling COIVD-19 cases, and the reopening of economies
continue to drive global growth forecasts higher. A strong start to the summer travel season, buoyed
by the reopening global economy, is ramping up the demand for oil toward pre-pandemic
levels. Higher demand coupled with disciplined
production from OPEC+ and U.S. shale producers has boosted
oil prices to highs not seen since 2018, with WTI oil up over
54.42% YTD through June, helping make energy the best-performing sector in 2021.
Midstream energy infrastructure clearly stands to benefit from both
stronger economic forecasts and oil demand. 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. Withstanding oil price fluctuations, midstream
companies are poised to generate meaningful free cash flow in 2021, with many
names expected to have excess cash after dividends. Buybacks supported by excess cash flow could
provide an additional tailwind for midstream equity performance. Approximately
half of AEDW by weighting has buyback authorizations in place. Supported by a
strong outlook, midstream energy infrastructure is well positioned to provide
attractive income to investors with the potential for total return as well.
Learn more about our oil and gas ETF here.