The US energy sector is starting to flourish following the finding of crude oil and natural gas reserves in North Dakota, Pennsylvania and Ohio in the last decade. This has resulted in the country changing from one of the biggest importers of natural gas to the leading exporters, according to Simon Lack, founder and managing director at SL Advisors.
Simon Lack founded SL Advisors, a family office, in 2009 to manage both his own and his friends’ wealth. Lack developed his interest in the energy sector following numerous partnerships including with Catalyst MLP, which led to the launch of a mutual fund. Then, due to its investors’ demand, the firm launched an ETF at the end of 2017. The American Energy Independence ETF (USAI) offers exposure to energy infrastructure companies located in the US and Canada.
Investors were attracted to the sector due to it being an income generating asset class and was compared to the high yield bond market. However this changed roughly five years ago due to the “Shale revolution” which started meant companies were creating growth projects and reinvesting back in to the company as a result, according to Lack. This caused the share prices to drop and reduced dividend pay outs, removing the factors attracting investors to the sector.
Today, these growth projects have progressed, dividends are increasing, and assets are flowing in to the sector funds. The USAI recently more than doubled its assets under management from $10m to $25m as an institution bought a large volume of the ETF.
USAI is still seeing inflows despite the recent popularity in Environmental, Social and Governance (ESG) investment products which looks to exclude oil and gas companies. In comparison to coal, natural gas produces less carbon emission, says Lack, meaning USAI offers exposure to less environmentally harmful companies.
Lack adds natural gases are seen as more sustainable alternative to coal and encourages this transition. However the US is implementing the Green New Deal which looks to eliminate the usage of fossil fuels by 2030 but SL Advisors is not concerned by this.
“The world is going to be using fossil fuels for the foreseeable future because technology isn’t there yet to transition over completely to renewable energy”, says Lack.
When asked about the potential difficulties faced using a long-term investment vehicle offering exposure to a short term industry, Lack said: “Energy infrastructure is definitely not threatened over the long run. Most observers expect steadily increasing natural gas use for decades.
“Moreover, our investment strategies are able to hold any kind of energy infrastructure asset, including renewables. As that part of the industry matures to where it can offer the same type of recurring cashflows available in pipelines, we will begin to add exposure.”
The sector has had its own recession in terms of performance as the energy sector indices and ETFs are still 33% down from their highs in 2014, but Lack says he is confident they have passed through the worst of it.
Hosted by ETF Stream on 12th June 2019