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Smooth Out Volatile Energy Investing With This Midstream ETF

Geopolitical factors stemming from the Middle East are certainly going to make for more volatile energy prices ahead, but risk averse investors don’t have to shun exposure to the energy sector entirely with available options like the Alerian Energy Infrastructure ETF (ENFR).

Even before the events in the Middle East, experts were already forecasting volatility in the energy sector. Of course, inflation is pairing aptly with rising energy prices. However, the transition to renewable energy sources is one of the other catalysts for market fluctuations.

“Times are turbulent—and all industries are being affected. That said, energy companies in particular face a number of disruptions from both macroeconomic and energy-specific shocks, including volatility in commodity prices, increased pressure to reduce carbon emissions, and supply chain disruptions,” a McKinsey & Company report said. “In fact, the majority of current energy and commodity prices are significantly higher and much more volatile than they were before the COVID-19 pandemic.”

However, energy can still help diversify a portfolio and capture upside in the sector. In the past three years, the S&P Energy index is up over 40% and was in the green even during 2022’s bearish turn for most sectors.

Get in the Middle of Energy Exposure With ENFR

Despite the volatility we associate with energy investing, fluctuating oil and gas prices need not limit investors. Midstream companies that offer ancillary services that support the energy sector are also vital. Thus, they open a plethora of opportunities in exchange traded funds (ETFs) that have a midstream-centric fund focus.

“All those hydrocarbons pouring out of the ground must get to the refiners somehow,” a Kiplinger article explained. “That’s done by midstream companies. Their business involves transporting crude oil, natural gas and refined products across a vast network of pipelines, rails, barges and tankers — connecting producers to end users. They service the industry itself, rather than being tied to commodity prices.”

ENFR provides midstream exposure, seeking investment results that correspond to the Alerian Midstream Energy Select Index (AMEI). AMEI is a composite of North American energy infrastructure companies. As a secondary objective, ENFR seeks to provide total return through income and capital appreciation.

That income appreciation can certainly speak to income-seeking investors in the current times of rising interest rates and high yields. As of September 30, the fund’s 30-day SEC yield is 5.10%.

vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for ENFR, for which it receives an index licensing fee. However, ENFR is 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.

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