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ETF Prime: Stacey Morris on Energy Sector Performance and More

On this week’s episode of ETF Prime, host Nate Geraci spoke with Stacey Morris, CFA, head of Energy Research at VettaFi. Morris and Geraci discussed the energy sector’s performance and how artificial intelligence may affect it. Afterward, Geraci welcomed Ryan Barksdale, Vanguard’s head of active equity product, to discuss the firm’s decision to reopen the PRIMECAP Fund and PRIMECAP Core Fund to investors.

Midyear Energy Overview

To begin, Geraci asked Morris to break down what she’s witnessed from the energy sector for the first half of 2024. She noted that the energy sector had a really strong start, with oil prices bolstered by a solid economic outlook. “Energy stocks were getting a boost from just the higher-rate environment, and the expectation that rate cuts were going to be further down the line,” Morris added. However, since April, energy performance has pulled a back a bit as oil prices retreated.

Despite fizzling energy stocks, midstream companies have fared far better. “Midstream has actually been pretty resilient in the second quarter, even as most of the energy complex is pulled back,” Morris noted. In particular, she highlighted the Alerian MLP ETF (AMLP) and the Alerian Energy Infrastructure ETF (ENFR) for their resilient performance through 2Q24. The underlying indexes for both funds are up over 14% as of June 17, 2024, according to Morris.

Natural Gas Demand Drivers

Moving on, Geraci asked Morris if she believes energy companies can benefit from the AI boom. She agreed that energy companies can stand to benefit, even though many technology companies are trying to use renewable energy.

“Even when you’re deploying more solar and wind, you’re usually going to need more natural gas capacity to go with it, just as a backup and to offset the intermittency of those renewables,” Morris assessed. With renewables currently unable to meet growing energy demand, natural gas companies can capitalize, be it as a primary energy source or as a backup, according to Morris.

Along with artificial intelligence, she noted that liquified natural gas exports are a major driver of natural gas demand. Morris added that current projects under construction reflect about 11 BCF a day for gas demand by 2028. While these projects indicate demand for natural gas, growing interest in AI data centers may move the needle further, according to Morris.

“To me, it’s a really good reminder of the fact that it’s hard to make demand projections for things like oil and natural gas because variables can change. And then suddenly, you have this big demand driver that no one was really thinking about until pretty recently,” she said.

Natural Gas Options

Focusing on natural gas, Geraci asked Morris for recommendations to investors seeking natural gas exposure in an ETF. In particular, Morris highlighted ENFR as a valuable option to consider. Morris noted that a large percentage of ENFR’s index, the Alerian Midstream Energy Select Index (AMEI), is invested in midstream companies primarily focused on natural gas infrastructure. By using a midstream ETF like ENFR, investors can enjoy the benefits of energy investing without the direct exposure to energy prices, according to Morris.

“There’s been a lot of volatility in natural gas prices. So, if you want to play the theme, get the demand benefit, and not have some of the heartburn associated with commodity prices, then midstream can be a good way to go,” she noted.

PRIMECAP Reopening

To close out this week’s podcast, Geraci was joined by Ryan Barksdale, Vanguard’s head of active equity product. Geraci and Barksdale discussed Vanguard reopening the PRIMECAP Fund and PRIMECAP Core Fund to investors.

“What it means for investors is they have the opportunity to access, in our opinion, a world-class investment management firm that has successfully navigated equity markets for 40 years,” Barksdale explained.

He noted that the Vanguard team is extremely excited to celebrate Vanguard’s 40th anniversary with PRIMECAP Management by giving investors more access to PRIMECAP’s investment expertise. Regarding the decision-making process to reopen the fund, Barksdale added that the funds have sufficient investment capacity to welcome new investors without endangering any previous investors currently engaged with the fund.

Listen to the entire episode of ETF Prime, featuring Stacey Morris and Ryan Barksdale:

Vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for ENFR and AMLP, for which it receives an index licensing fee. However, ENFR and AMLP are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of ENFR or AMLP.

For more ETF Prime podcast episodes, visit our  ETF Prime Channel.

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