iM Securities advised on the 10th that attention should be paid to exchange-traded funds (ETFs) related to 'energy infrastructure (midstream),' as it is expected that President Donald Trump's second administration will pursue policies to expand energy supply. Midstream refers to the stages of processing, transporting, and storing energy that has been drilled and produced.
Park Yoon-cheol, a researcher at iM Securities, predicted that energy security would be central among the Trump administration's policies. Given that it must curb energy price increases to manage inflation, the energy supply expansion policy represented by the slogan 'Drill, Baby, Drill' is likely to gain traction.
Park noted that while seasonal factors or expectations for expanded mining could lead to a rise in upstream (drilling and production) in the short term, attention should be paid to the energy infrastructure industry that transports and stores crude oil and natural gas in the medium to long term. He stated, 'The Trump administration’s energy price stabilization policy is favorable for midstream, as the impact of increased transport volume is significant.'
According to Park, profit estimates for major midstream companies within the Standard and Poor's (S&P) 500 index, such as Williams Companies (WMB), OneMain (OKE), and Kinder Morgan (KMI), continue to rise, and their valuations are not at burdensome levels.
Park mentioned that among midstream-related ETFs, there are first the pure Master Limited Partnerships (MLPs), 'Alerian MLP ETF (AMLP)' and 'Global X MLP ETF (MLPA).' MLPs refer to partnerships that engage in the construction or operation of energy infrastructure assets. The U.S. government has a structure that allows high-cost facility investments, such as oil and gas pipelines, to be left to private capital while exempting them from corporate taxes.
The greatest advantage of MLP ETFs is the high dividend yield of 7-8%. Park noted, 'MLP ETFs can be expected to have a higher dividend payout ratio than general corporations, as they distribute more than 90% of their investment income along with corporate tax exemptions.'
'Global X MLP & Energy Infrastructure ETF (MLPX)' and 'First Trust North American Energy Infrastructure (EMLP)' are also midstream ETFs. Although the proportion of energy infrastructure corporations in the constituent stocks is large, resulting in lower dividend rates, the expected returns are higher when the energy policy theme is on an upward trend, Park explained. He added, 'Considering transaction volumes and assets under management (AUM), AMLP and MLPX are easier to trade than other products.'
Last month, KoAct U.S. Natural Gas Infrastructure Active, which invests across the entire natural gas value chain, was listed in Korea. Park concluded that this could serve as a suitable alternative, as it is the only domestic product that invests in the entire 'natural gas value chain (supply chain).'