By Coulter Regal, CFA
Associate Product Manager
Income investors have become accustomed to expanding their search for yield beyond traditional fixed income securities for more than a decade. Many have looked to alternative strategies, such as preferred securities or business development companies, to inject much desired income and diversification into their portfolios. However, one additional area that should not be overlooked lies within the North American energy complex.
Tap Into Yield with Energy Infrastructure
The North American midstream energy segment, often referred to as energy infrastructure, plays a vital role in connecting upstream energy production with local and global demand. Energy infrastructure companies provide the critical services of transporting, processing and storing of hydrocarbons as well as facilitating exports. Downstream users, both commercial and residential, rely on this infrastructure on a daily basis to help supply their energy demands.
Energy Infrastructure companies typically do not own any hydrocarbons themselves and instead operate fee-based business models where revenue is generated for each unit of oil or natural gas that is transported, stored or processed. This fee-based model, as well as the necessity of the services provided, helps provide stable cash flows to support attractive dividends. Energy infrastructure also offers greater income than many other yield-oriented investments such as bonds, utilities and Real Estate Investment Trusts (REITs).
Energy Infrastructure Yield vs. Traditional Fixed Income
Source: FactSet. Data as of 10/31/2021. Yield figures for Energy Infrastructure, Utilities, REITs, and U.S. Stocks calculated as dividend yield. Yield Figures for U.S. High Yield Bonds, U.S. Investment Grade Bonds, and 10 Year Treasury Bonds calculated as yield to worst. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. For fund performance current to the most recent month-end, visit vaneck.com. See definitions and important disclosures at bottom of page.
Comprehensive Access to North American Energy Infrastructure
Direct investment in energy infrastructure, including MLPs (master limited partnerships), has historically been a complex matter. However, with the VanEck Energy Income ETF (EINC), investors can gain comprehensive exposure to North American energy infrastructure companies without K-1 tax reporting, fund-level taxation, leverage or debt counterparty risk.
EINC seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® North America Energy Infrastructure Index, which is intended to track the overall performance of North American companies involved in the midstream energy segment. This includes MLPs and corporations involved in oil and gas storage and transportation.
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Originally published by VanEck on November 19, 2021.
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The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
Definitions: Energy Infrastructure: The MVIS® North America Energy Infrastructure Index is a rules-based index intended to track the overall performance of the North American energy infrastructure segment. U.S. High Yield Bonds: Barclays Capital US High Yield Very Liquid Index is a more liquid version of the Barclays Capital US Corporate High-Yield Index that measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. REITs: FTSE NAREIT Equity REITs Index is a broad-based, free-float adjusted market capitalization weighted index consisting of equity real estate investment trusts. Utilities: S&P® 500 Utilities Index, consists of widely held utility common stocks of the S&P® 500 Index. U.S. Investment Grade Bonds: Barclays Capital US Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. U.S. 10-Year Treasury Bonds: ICE BofAML Current 10-Year US Treasury Index is a one-security index comprised of the most recently issued 10-year U.S. Treasury bond. U.S. Stocks: The S&P® 500 Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sector. Dividend Yield is the annual percentage of return earned by an investor on a common or preferred stock. The yield is calculated by dividing the amount of the Dividends Per Share by the current Market Price Per Share of the stock. Yield to Worst is a measure of the lowest possible yield that can be received on a bond that fully operates within the terms of its contract without defaulting.
The S&P 500 Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2021 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spdji.com. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
ICE Data Indices, LLC and its affiliates (“ICE Data”) indices and related information, the name “ICE Data”, and related trademarks, are intellectual property licensed from ICE Data, and may not be copied, used, or distributed without ICE Data’s prior written approval. The licensee’s products have not been passed on as to their legality or suitability, and are not regulated, issued, endorsed, sold, guaranteed, or promoted by ICE Data. ICE Data MAKES NO WARRANTIES AND BEARS NO LIABILITY WITH RESPECT TO THE INDICES, ANY RELATED INFORMATION, ITS TRADEMARKS, OR THE PRODUCT(S) (INCLUDING WITHOUT LIMITATION, THEIR QUALITY, ACCURACY, SUITABILITY AND/OR COMPLETENESS).
MVIS North America Energy Infrastructure Index is the exclusive property of MV Index Solutions GmbH (a wholly owned subsidiary of the Adviser), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MV Index Solutions GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. The VanEck Energy Income ETF is not sponsored, endorsed, sold or promoted by MV Index Solutions GmbH and MV Index Solutions GmbH makes no representation regarding the advisability of investing in the Fund.
An investment in the Fund may be subject to risks which include, among others, risks specific to oil and gas companies (midstream, marine shipping, geopolitical risk), special risk considerations of investing in Canadian issuers, MLP, MLP Tax, energy sector, return of capital distributions from the fund reduce the tax basis of fund shares, liquidity, market, operational, medium – capitalization companies, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified and concentration risks, all of which may adversely affect the Fund.
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