Oil prices rallied last week, supporting some gains for select energy equities – a theme that’s been somewhat prominent this year. Just look at the Alerian Energy Infrastructure ETF (ENFR ) – an exchange traded fund that’s higher by 12% year-to-date.
It’s an admirable performance considering the backdrop of investors’ enthusiasm for more glamorous AI and growth stocks. Additionally, ENFT has posted double-digit returns this year with the perk of a dividend yield of north of 5%. Alluring traits to be sure, but there’s much to the ENFR story.
The aforementioned adulation heaped upon AI is warranted to some extent. However, it’s also overshadowing other themes, including the energy transition. That’s an area at which energy infrastructure companies sit at the precipice. Overshadowed or not, the energy transition is occurring. And some experts are calling attention –factors that could bode well for some ENFR holdings.
ENFR Has Structural Tailwinds
At the recent Seeking Alpha Investing Summit, Jennifer Warren, founder of Concept Elemental, noted that themes such as industry consolidation, geopolitics, supply chain, and the energy transition could spark significant shifts in energy consumption, development, and transmission.
In what could be a longer-ranging positive for some ENFR member firms, oil demand could remain sturdy. And the same is true of natural gas, according to Warren. Of note to investors considering assets such as ENFR, Goldman Sachs said last week that production growth in the Permian Basin in Texas should remain steady through at least 2026 and it could be several more years after that before output there declines noticeably.
Those are compelling proclamations when considering global efforts to bolster the use of renewables are increasing and there’s mounting evidence those efforts are paying dividends. Government policy is likely to drive further adoption of green energy.
“Reality and necessity are more the fundamental drivers than policy ambitions,” said Warren at the Seeking Alpha conference. “We need all sources and all innovations” as demand expands.
As those demands and adoption of renewables increase, so could the benefits accrued by ENFR holdings because many of the companies residing in the ETF are already experts at transporting and transmitting energy – two needs that remain constant across fossil fuels and renewables.
Potentially further supporting the case for ENFR is the point that many midstream companies, including some residing in the ALPS ETF, are efficient allocators of capital and they’re not taking on massive amounts of debt to fund new projects. That could be a sign they’re able to pivot to a broader mix of energy while endangering balance sheet strength.
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