ETF Prime: Morris Unpacks Energy’s Role in Modern Portfolios

According to Morris, energy has felt like feast or famine in 2025. A strong first quarter gave way to an April sell-off as OPEC+ fast-tracked its production, and tariffs rattled markets. While oil briefly surged in June during Middle East tensions, prices quickly moderated. After being the best-performing sector in the first quarter, energy was the worst-performing sector in the second quarter. Energy stocks have yet to fully recover from April, with ongoing oil supply additions and demand concerns weighing on sentiment.

With energy representing just 3% of the S&P 500, some investors see a reason to steer clear. But others view this as a contrarian opportunity. Morris noted that the sector offers the highest dividend yield among all 11 sectors and the second-highest free cash flow yield. Rather than broad exposure, she recommends investors consider energy infrastructure and MLPs, which have shown stronger performance since the end of 2022 and offer stronger income potential.

There’s been a wide dispersion in returns across energy ETFs, with roughly 20% separating the Alerian MLP ETF (AMLP A-) and the VanEck Oil Services ETF (OIH B+). Morris explained that MLPs have benefited from fee-based business models, solid distribution growth, and growing demand for natural gas infrastructure related to growing LNG exports and data centers. In contrast, oilfield services are facing headwinds from declining rig counts and negative earnings revisions, with no clear bottom yet in sight.

Geraci noted the upcoming 15-year anniversary of the AMLP, and Morris reflected on the evolution of the MLP space.  Since the pandemic, MLPs have seen a free cash flow inflection and widespread buyback authorizations. The ETF structure offers an added benefit for investors, including 1099 tax reporting instead of a Schedule K-1.

The recently passed OBBBA legislation is broadly positive for oil and gas. Morris highlighted key wins for midstream and MLPs: 100% bonus depreciation, expanded qualifying income categories for MLPs (including hydrogen and carbon capture), and a permanent 20% QBI deduction. Elements of the bill that create hurdles for wind and solar tend to benefit natural gas.

Oil faces potential headwinds from seasonally lower demand and rising OPEC+ supply. Ongoing tariff threats on Russian energy buyers also add uncertainty. On the natural gas side, soft prices due to a mild summer and underwhelming demand are a concern, but new LNG export capacity could drive a rebound. Morris is watching whether prices will rise enough to prompt a production response in the Haynesville.

Thummel emphasized the foundational role of energy in the economy and made the case for why it should be represented in every investor’s portfolio. He noted that while energy has historically been treated as a commodity play — primarily tied to oil prices — it encompasses far more and is often misunderstood.

Thummel argued that the energy sector remains significantly underrepresented and undervalued relative to other sectors, despite being critical to global economic function. He highlighted that investors frequently overlook energy due to past volatility, but stressed that the sector is evolving, with many compelling growth drivers beyond just commodities.

The conversation framed energy not as a short-term trade, but as a long-term, strategic allocation, underscoring its importance in a well-diversified portfolio.

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