Alerian makes European debut with North American midstream energy dividend ETF

Jul 30th, 2020 | By | Category: Equities

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Alerian, the MLP and energy infrastructure industry’s foremost research and indexing firm, has made its UCITS ETF debut on London Stock Exchange with the launch of the Alerian Midstream Energy Dividend UCITS ETF (MMLP LN).

Alerian makes European debut with energy infrastructure ETF

Midstream energy infrastructure companies generate fees by transporting, processing, and storing oil, natural gas, and NGLs.

The fund provides exposure to North American midstream energy infrastructure companies, including master limited partnerships (MLPs), and is available in US dollar (MMLP LN) and pound sterling (PMLP LN) share classes.

It has been brought to market in partnership with London-based white-label ETF provider, HANetf.

Dallas-based Alerian is an authority on North American MLP and energy infrastructure companies and is the sponsor of the $3.6 billion NYSE Arca-listed Alerian MLP ETF (AMLP US), the largest infrastructure ETF globally.

Hector McNeil co-CEO of HANetf, commented, “We are excited to bring MMLP to European investors who are in desperate need of more high-yielding and stable income streams. MMLP is the first and currently only UCITS ETF that embeds the expertise, coverage, and classification of the world leader in this sector.”

David LaValle, CEO at Alerian, said, “The launch of MMLP demonstrates European investors’ interest in exposure to North American midstream energy infrastructure. We are excited about our partnership with HANetf and our joint innovation to answer investors’ call for yield and income.”

Lida Eslami, Head of Business Development, ETP and IOB, London Stock Exchange, added, “We congratulate Alerian on the listing of its debut European-listed UCITS ETF on London Stock Exchange. Alerian joins a growing number of innovative issuers on our markets, offering institutional and retail investors exposure to a wide range of products across assets classes and geographies, including some of the most liquid US equities and now North American midstream energy infrastructure.”

Midstream

Midstream energy companies typically own and operate energy pipelines, storage facilities, processing plants, and import/export terminals that facilitate the transportation, for fees, of crude oil, natural gas, and natural gas liquids to customers in domestic and international markets.

These companies are typically organized with tax-efficient corporate structures – such as MLPs and C-corps – that enable their earnings to be passed on to investors in the form of attractive dividend distributions.

The fee-based nature of midstream operators means their cash flows are less sensitive to commodity prices than other parts of the energy value chain, providing useful defensive characteristics, while their low correlations to other income-yielding investments and omission from mainstream indices make them compelling portfolio diversifiers.

The midstream was dealt a blow by the oil supply glut earlier in the year that was caused by sparring producers, Saudi Arabia and Russia, and the Covid-19 pandemic’s effect on global oil demand. The ensuing price slump led many US producers to shut down their rigs which, in turn, fed through to midstream companies whose revenues depend significantly on oil volume flowing through their infrastructure.

The subsequent fall in midstream stock prices has resulted in an increase in the dividend yields of MLP and energy infrastructure stocks which could represent a huge opportunity for income-seeking investors. The current yield on MMLP’s underlying index is 10.36% (as of the end of June), notably above its five-year average of 7.25%. This compares favourably to the FTSE 100 which has a current yield of 4.42%.

Fears of the sector being a value trap are probably overdone given investment-grade-rated credits make up the majority of the index (82.2% of the index by weighting, as of June 30) and oil prices have recovered somewhat in recent months (WTI is now around $40). Moreover, US energy independence remains a long-term, strategic priority for the US, meaning companies operating in the space can expect a healthy dose of government support.

Methodology

The fund tracks the Alerian Midstream Energy Dividend Index through indirect (or swap-based) replication.

The index includes companies listed in either the US or Canada that belong to the Oil & Gas Storage and Transportation sector, according to the Global Industry Classification Standard (GICS). Eligible stocks must have an average daily trading value of at least $5 million and have paid a regular cash dividend in each of the past two quarters.

Constituents are weighted by aggregate annualized dividends (shares outstanding multiplied by the stock’s latest quarterly dividend payment annualized) subject to a 10% cap per stock. Notable positions currently include MPLX, Enterprise Product Partners, Enbridge, Energy Transfer, Kinder Morgan, TC Energy, The Williams Companies, ONEOK, Pembina Pipeline Corporation, and Magellan Midstream Partners.

The index is reconstituted annually in October and rebalanced on a quarterly schedule. To maintain the high-income nature of the index, stocks that cease to pay dividends can be removed at the next quarterly rebalance.

The fund comes with an expense ratio of 0.40%. This compares to 0.50% for the $220m Invesco Morningstar US Energy Infrastructure MLP UCITS ETF (MLPD LN), presently Europe’s largest North American energy infrastructure play, and 0.25% for the $10m L&G US Energy Infrastructure MLP UCITS ETF (MLPI LN).

Cross-listings of the ETF onto Xetra and Borsa Italiana are planned.

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