The energy transition portfolio, which includes pairing carbon-based and clean energy investments, is outperforming broader markets.
The energy transition from traditional fossil fuel sources, such as crude oil and coal, to renewable clean energy sources, such as wind, solar, and biofuels, will rely heavily on existing infrastructure. As traditional energy sources and infrastructure will continue to play a role in the energy transition in the coming decades, investors can gain exposure to all facets of the transition by pairing the (AMLP ) and the (ACES ).
In the first several weeks of 2023, ACES and AMLP have gained 11.98% and 8.80%, respectively, as of February 14, each on a total return basis. During the same period, broader markets, as measured by the S&P 500 and the Russell 1000, have climbed 7.93% and 8.34%, respectively.
Over a one-year period, ACES and AMLP are up 0.72% and 17.93%, respectively, while the S&P 500 and Russell have declined 4.44% and 4.97%, respectively, all on a total return basis. Looking over a three-year horizon, ACES and AMLP have increased 29.69% and 36.13%, respectively, while large cap indexes S&P 500 and Russell 1000 have gained 28.43% and 27.53%, respectively.
Midstream is an attractive investment for several reasons: The U.S. is the world’s largest producer of oil and natural gas with significant reserves; natural gas prices, along with natural gas liquids (NGLs), have significantly recovered this year amid improving demand; and natural gas demand is forecast to grow through 2030 with continued infrastructure build-out, according to ALPS.
An investment in clean energy offers exposure to a high-growth industry, which will continue to gain market share. Global superpowers have unveiled aggressive carbon-neutral goals and clean energy policies with massive fiscal stimulus measures, clean energy technology costs continue to plummet as global adoption increases, and renewables continue to gain market share for power generation, according to ALPS.
U.S. midstream companies will remain a valuable part of energy production, as they are uniquely equipped to handle the increasing crude, natural gas, and NGL export demand over the next decade, while also acting as the transportation infrastructure to a number of renewable fuels, such as hydrogen for fuel cells, renewable diesel, and ethanol.
The blended strategy — an equal allocation to ACES and AMLP — may offer improved risk-adjusted returns with a yield of 4.43%, and represents an alternative to choosing between high yield in the midstream MLP sector and high growth in clean energy, according to ALPS.
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