U.S. inflation increased in December, marking the largest monthly increase in overall prices since February 2024.
The Consumer Price Index rose 0.4% in December from November, up 2.9% from a year earlier, the Labor Department said Wednesday. Rising consumer prices is an indicator that efforts to combat inflation may have stalled, and investors may expect to see higher interest rates for longer and fewer rate cuts than once expected.
This news is not favorable for the growth stocks that had led broad market returns in the past year. However, the energy sector has demonstrated its ability to perform well during periods of higher interest rates.
Notably, the energy sector has been off to a strong start in 2025 to date, while the broader market has struggled. The S&P 500 Energy Sector is the top-performing sector, up 6.5% as of January 14. Meanwhile, the S&P 500 is down 0.7% during the same period.
Within the energy sector, MLPs and midstream may be particularly attractive, given less sensitivity to rising interest rates.
Midstream companies can offer generous income regardless of the interest rate environment. This makes the sector a compelling option during uncertainty around the Fed’s rate-cutting agenda.
In addition to offering attractive yields, midstream/MLPs have seen strong performance, and interest rates are not a primary determinant of equity performance for the segment.
Rising rates were not a significant headwind for midstream, and lower rates are unlikely to be a significant tailwind, according to VettaFi head of energy research Stacey Morris
ETF Exposure to MLPs/Midstream
Investors can access MLPs/midstream with the Alerian MLP ETF (AMLP ). AMLP tracks the Alerian MLP Infrastructure Index (AMZI). The index is a composite of energy infrastructure MLPs that earn most of their cash flow from fee-based midstream activities.
AMLP has $10.1 billion in assets under management, making it the largest MLP ETF and second-largest energy ETF available to investors.
The Alerian Energy Infrastructure ETF (ENFR ) is another energy infrastructure ETF worth consideration. ENFR, which is the lowest-cost energy infrastructure ETF, provides exposure to the Alerian Midstream Energy Select Index (AMEI). The index is a composite of North American energy infrastructure companies, including C-corps and MLPs.
For more news, information, and analysis, visit the Energy Infrastructure Channel.
vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for AMLP and ENFR, for which it receives an index licensing fee. However, AMLP and ENFR are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of AMLP and ENFR.
