ENFR - ENFR: A Return To Energy Leadership In 2024

2024-01-10 15:12:42 ET

Summary

• Energy is poised for a comeback as momentum wanes in Technology.
• The Alerian Energy Infrastructure ETF offers exposure to North American energy infrastructure companies.
• The ENFR ETF provides potential for stable cash flows, growth, and diversification, but investors should be aware of associated risks.

After a poor 2023, Energy seems poised for a comeback as momentum wanes in Technology. Laggards become leaders, and leaders become laggards, which is where the Alerian Energy Infrastructure ETF ( ENFR ) becomes an interesting energy play. ENFR is a midstream energy exchange-traded fund, or ETF. ENFR is constructed to reflect both the price and the yield performance of its benchmark index, the Alerian Midstream Energy Select Index (AMEI) prior to the deduction of any fees and expenses. The AMEI index itself provides a comprehensive overview of North American energy infrastructure entities, encompassing both corporations and master limited partnerships (MLPs).

The strategic design of ENFR is to leverage the surge in North American energy development, enabled by the advent of innovative technologies that have released substantial quantities of oil and natural gas reserves. Energy infrastructure companies, which own and operate pipelines, storage facilities, and processing plants, play a pivotal role in connecting North American energy production to local and global demand.

Top Holdings in ENFR

ENFR is comprised of numerous companies operating within the energy infrastructure sector. Top holdings include:

1. Enbridge Inc. (ENB) : A multinational pipeline company, Enbridge is primarily involved in the transportation and distribution of crude oil, natural gas, and other liquids.

2. Enterprise Products Partners L.P. (EPD) : This American midstream natural gas and crude oil pipeline company also deals with petrochemical and natural gas processing.

3. Energy Transfer LP (ET) : A company that provides natural gas pipeline transport and is also involved in the storage and wholesale of refined petroleum products.

4. ONEOK, Inc. (OKE) : A leading midstream service provider, ONEOK is engaged in the gathering, processing, storage, and transportation of natural gas in the U.S.

5. Cheniere Energy, Inc. (LNG) : A Houston-based company primarily engaged in LNG-related businesses, and owns and operates the Sabine Pass and Corpus Christi LNG terminals.

The top 10 holdings account for 62% of the ENFR portfolio. Keep that in mind, as this is a fairly concentrated fund from that perspective.

Sector Composition and Weightings

The ENFR ETF maintains a diversified portfolio by investing across various sectors within the energy infrastructure landscape.

These weightings provide a balanced exposure to the different facets of the energy infrastructure sector.

Peer Comparison: ENFR versus Other ETFs

When compared to other similar ETFs, ENFR stands out due to its unique focus on North American energy infrastructure. For instance, while the Alerian MLP ETF ( AMLP ) also offers exposure to the midstream energy sector, it predominantly focuses on Master Limited Partnerships (MLPs). In contrast, ENFR includes both MLPs and corporations, providing a more comprehensive representation of the energy infrastructure sector.

The Investment Case: Pros and Cons of Investing in ENFR

Investing in ENFR comes with its share of advantages and potential risks.

Pros:

1. Inflation Protection : Real assets such as pipelines and storage tanks provide protection against inflation.

2. Stable Cash Flows : Since midstream companies primarily operate on a fee-based model, their cash flows are typically more stable and less directly exposed to commodity price fluctuations.

3. Potential for Growth : With no fund-level corporate taxes, ENFR offers potential for total return.

4. Diversification : Investing in ENFR can provide diversification benefits, especially given its low correlation with other income-focused investments such as bonds and utilities.

Cons:

Potential risks of investing in ENFR primarily revolve around market and sector-specific factors. These include:

1. Commodity Price Volatility : While midstream companies operate on a fee-based model, the volumes of oil and gas they transport are indirectly affected by commodity price trends.

2. Regulatory Risks : Changes in regulatory policies can impact the operations and profitability of energy infrastructure companies.

3. Interest Rate Risks : Rising interest rates can increase the cost of capital for these companies, potentially impacting their growth prospects and profitability.

Conclusion: To Invest or Not to Invest?

ENFR presents an attractive investment opportunity. With its unique focus on North American energy infrastructure companies and potential for stable cash flows and growth, ENFR can be a valuable addition to an investor's portfolio.

However, potential investors should also be aware of the associated risks, particularly those related to commodity price volatility, regulatory changes, and interest rate fluctuations. I think it can be a good year for Energy, and this fund would likely benefit in a big way.

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