Watch Now: ETF Edge on energy amid US-Iran uncertainty and how ETF investors are positioning now

Added: 2026-05-04

[00:00:07]Welcome to ETF Edge, your go-to place for all things exchangeraded funds. I'm Christina Parts Neville filling in for Dom Chu today. From just the beginning of this weekend to the end of the weekend, the situation in the straight of hormones has changed once again. It's really tough to keep on pace with it.

[00:00:22]But as investors now grow skeptical of trading around headlines, it's time for to plan for the longer term impact specifically on the energy sector. And that's why we have Paul Bioke, head of fund sales and strategy at SS and seek Alps Advisor as well as Cynthia Murphy, director of research at Betifi. Thank you both for joining me today. Of course, we have a very topical uh subject heading right now, but Cynthia, I'm going to start with you. So in the immediate term you found that the quote most explosive gains have not come from oil itself but rather from the cost of moving around the conflict zones. Can you just elaborate does that mean just shipments or what?

[00:00:59]>> Yeah, I mean we've been talking a lot about there's this one really unique ETF in the market ticker B wet which basically is trading in freight futures and that fund is up over 550% year to date. So we at Vetify started getting a lot of questions uh about this ETF like what is up with it? What kind of performance is this? And it really is a a story about shipping costs. So anytime you have some big disruption to shipping in this case with the straighter horm moves in focus uh you see freight futures skyrocket and there's one ETF that captures pretty much that performance better than anybody else. So it's really moving that oil around that has been a big story. Of course, oil prices itself have been dramatically higher and the energy sector in general, energy equities, every part of the energy story this year has been a big blockbuster year, but be wet is really standing up. USO which is oil futures is perhaps your most direct exposure to oil prices uh in ETF form as well and competing funds is up dramatically as well over 70% year to date and it is just you know reflecting this conflict and the impact it is having on folks concern about access to oil and and Paul I'm just going to continue with this the same notion at the same time you have noted energy stocks have been trading with a negative correlation to the S&P 500 actually since the war began. So, how would you tell people that this is a a continued diversification opportunity?

[00:02:32]>> Well, if you look at the S&P 500, energy is less than 5% of the weight of the S&P 500. So, inherently, most people in a diversified asset allocation framework don't have a lot of exposure to the energy sector if they're just using the S&P 500 as the anchor of the 60% of their 6040 allocation. So when we think about energy, we often talk about energy infrastructure. So the pipelines that move, that store, that process, the hydrocarbons that are produced in the United States. And increasingly what's become more relevant is the LG opportunity from the United States. The very centralized facility in Qatar that produces much of the world's LNG is at risk as a result of the conflict in Iran. And we've seen some of the LNG names or the liquefaction focused names in the energy infrastructure space benefit from the perception that once we come out of that, regardless of what the resolution looks like, that countries and companies around the world will be scrambling to find more stable sources of energy, but also more stable sources of electricity. and the investment that's going to be required in new pipelines to avoid the straight of Hormuse or to secure long-term contracts for LNG from the United States in place of the Middle East. Those types of investments create a massive tailwind in our mind for things like energy infrastructure, but more broadly for the commodities and commodities related spaces that most people don't have a lot of exposure to in their portfolios.

[00:04:04]>> Okay, I'm actually going to take that thought. So, this is I'm going to open it up to the both of you. So let's say okay we find a resolution ceasefire great but the problem seems to be and you highlighted that Paul regional infrastructure damage and that tends to linger long-term capital intensive projects. So for both of you, what's your outlook in terms of regional building? And Cynthia, I'm gonna start with you.

[00:04:23]>> I mean, if we go back to 2022, which is the last time we saw energy lead the market, it was up about as a sector about 65% on the heels of the Russia invasion of Ukraine, which really disrupted energy supplies. It came to the limelight then just how outdated a lot of energy infrastructure was, how much an opportunity this was longer term as a growth team. And then you also had supply concerns because we're just coming out of the pandemic and all of a sudden supply uh demand was was going up. So we've seen what that perfect storm looks like in terms of energy and the investment that follows. I think we're now back a little bit in a similar position. Whereas this conversation about one we can't be super dependent just on one type of fuel and it it becomes an opportunity not only for infrastructure investments like you know an ETF like ENFR who captures that that moment really well but also in terms of other sources of energy. So it comes to to mind things like nuclear energy and uh all sorts of other uh natural resources real assets conversation. So it really becomes an opportunity that is much more um much broader than just your oil conversation.

[00:05:42]>> Paul, your take.

[00:05:44]>> Yeah. Yeah. So we talked previously about this idea that even before the Iran conflict, a lot of these global commodities markets were fraught. And if nothing else, this conflict has exacerbated a lot of the challenges. If you look at things like copper and aluminum, a lot of the key inputs to infrastructure buildout, they were already already expected to be in a deficit for as far as the I could see.

[00:06:06]So in many ways, the takeaway, the learning here is just how massive the opportunity is for investments in material stocks, in energy stocks, and segments of the market that most people again are underexposed to. and the massive amount of investment that's likely to take place even absent the damage to critical infrastructure in the energy market countries are scrambling or were scrambling even ahead of the conflict to secure their own security around power generation so in the United States electricity demand growth was about4% annually over the course of the past 2530 years it's expected to grow as much as 5% annually going forward that means more copper that means more renewables that means the inputs that go to batteries the critical minerals to all of that infrastructure buildout. So in some ways one of the good takeaways advisors can take from this is the idea that where am I underrepresented in a portfolio? How do I build a durable allocation to the segments of the market that stand to benefit from this massive capital intensive investment that's going to take place globally in the coming weeks in the coming months in the coming years and in a secular trend not just a cyclical trend. Paul, I'm going to be more specific. So, there are reportedly over 200 loaded tankers sitting inside the Gulf right now. And when you look at the midstream names in uh that we'll say the ticker is ENFR and AMLP, how much of that actually shows up in earnings versus how much is just a fear trade that actually fades?

[00:07:35]>> Well, what's interesting about energy infrastructure is that those companies earn a fee based on volume. So, they're not really tied to the price of the commodity. If a price of a commodity goes up due to a secular or longer term trend, maybe volumes improve and that improves the outlook for revenue. But by and large, short-term spikes in energy andor natural gas prices doesn't necessarily impact their revenue. They tend to be somewhat stable relative to say refiners and EMP companies who are much more beholden to the prevailing price of gasoline, the prevailing price of crude oil, the prevailing price of Henry Hub. So in many ways energy infrastructure provides a somewhat defensive orientation in the energy market. But if we do see some changes in the global landscape for energy markets, meaning people in Europe, people in Asia going to the United States for their LG as opposed to cutter coming to the United States for crude oil as opposed to Saudi Arabia or the Middle East. that will and should longterm create new revenue opportunities for the en energy infrastructure industry which by the way is very North Americaoriented.

[00:08:44]>> Cynthia that brings me maybe to a more forward-looking question specifically about the next generation of energy production and namely recently about the not why I should say hot nuclear sector.

[00:08:54]We often talk about nuclear and air and yet it's it seems a little bit out of reach for some viewers. Can you just share your outlook specifically within that sector?

[00:09:02]Yeah, to to Paul's point, uh it's a completely different return stream. So I I wanted to mention on things like AMLP for example, uh my colleague Stacy Morris calls it the shipping and handling part of the energy story. So it's uh that volume based, not oil price based uh kind of performance driver on nuclear. It's interesting like there's an ETF and UKZ for example that it's it's really capturing that opportunity set. It's amazing how just uh general opinion about nuclear power has shifted over the last few years and it has to do with need. It's if if you think about we're talking about a conflict that is putting all these energy sources on the map and creating concern about that availability and we are also talking about think about energy as just the foundational pin of the whole AI infrastructure conversation that we've been having over the last couple years.

[00:09:59]So it is about finding these alternative sources and today for ETF investors you can actually access most of them including something like nuclear power through easy tickers like nukes and there's different ways to stay invested in this completely different type of return stream.

[00:10:17]If I could, I want to push back a little bit just because it seems like whenever we're building out these data centers, there's push back from NIMI just not in my backyard. Uh the health concerns, the environment, and so when we talk about even the smaller uh nuclear capabilities that maybe Meta is putting forward or other uh you know data center builders, um it seems still to be a longer term frame and possibly may not be done within the next 5 to 10 years. So, is that something we recommend to our investors when it's not in the immediate term?

[00:10:48]>> Cynthia, >> well, I I I believe in in investment. I I'll let Paul speak to it uh because he's way smarter on on on this, but uh I actually think the whole point is you want to think about these things long term. I mean, thematic investing really works when you have a long-term time horizon, especially on a big growth area such as energy and alternative energy.

[00:11:11]So I I think that is not a detractor.

[00:11:13]It's actually a compelling fact that this is a multi-year process. Paul >> Paul.

[00:11:19]>> Yeah. So in some ways it gets back to that award-winning movie Everything Everywhere All at Once, diversified access to energy, optionality in terms of emerging technologies and existing technologies. And so the way we think about the the energy markets and power going forward is energy, materials and utilities, three sectors of the core of electrification are less than 10% of the S&P 500. Most people don't have a lot of exposure to them. So if you can build an electrification infrastructure anchor like through Elfie and then you can kind of juice up if you will exposure to things like nuclear through SMRF or a nuclear focused ETF combine that with energy infrastructure if you're trying to get more exposure to traditional fossil fuel oriented segments of the marketplace and then you can layer on exposure to other emergent technologies in the energy space like a renewable portfolio like in the case of ACES is all of a sudden you've got a lot of bases covered, but you've also built a durable portfolio of energy, power, materials, exposures that's designed to ride the coattails of this long-term trend. This isn't something that's going to take place over 10 years or 15 years.

[00:12:35]And so to Cynthia's point, I think you have to look out 20 25 years into the future and many of these technologies are going to combine to service that.

[00:12:44]You touched upon diversification and Cynthia, I'm just going to just point to you and you note the outperformance of aerospace and defense funds. Does that have legs beyond this conflict? I'm thinking of ITA as a particular name.

[00:12:58]>> Yeah, ITA is kind of a classic space and defense. I think the opportunity there has been on again the broadening of the theme. If you think about one of the things we've talked about the most this year is about space exploration and space investments given that we're about to see the SpaceX IPO that has really put that on the map. But the point is space today is a big part of this aerospace and defense theme. So there's a lot of ETFs that are tackling more that more directly like UFO like shield from global X that have the cyber security element satellites communications navigation. So the defense theme is actually a very colorful theme nowadays. It has a lot of interesting names that are it isn't really just about Loheed Martin and uh some of the traditional names that you will find in in ITA but it's a space that again uh you know anytime you have geopolitical heat it puts this kind of theme on the map but is another big growth area because there's so much new technology coming up and so much investment coming into this this space a lot of governments making commitments for much more investment in the next five to 10 years. So again, another big growth theme this year.

[00:14:09]>> And and Paul, I know you list you talked about the time frame of, you know, 20 25 years, uh, you know, and you're you're seeing these long-term trends born out of maybe even the current geopolitical instability, but do you have any specific names that maybe you would recommend within the 5 to 10 year period if people can't wait that long?

[00:14:28]>> Yeah. So I I touched on Li, which is an electrification infrastructure strategy.

[00:14:32]It has energy, it has materials, it has industrials names in it. It has a big slug of utilities. And so near-term, I think you look at the the capex commitments from utilities to accommodate growing electricity demand, specifically earmark to data centers.

[00:14:48]That's been a large focus of ours and we expect that to provide strong relative performance in the coming years, assuming all of this capex spending continues a pace. And again, these are categories investors don't typically have a lot of exposure to. So, in many ways, what Cynthia's talking about, what you're talking about with defense spending and the massive ramp up in defense budgets around the world, all of these things are converging for the same limited scarce resources. The bottleneck for AI might be chips, but it's also power and transmission and the the raw materials that go into construction. If you look at defense, that's also part of the constraint is the availability of the rare earths, the minerals that go into as well as the raw materials that go into that construction. So you have a lot of sources competing for scarce resources globally. All of which are already in a fraught situation from a supply and demand perspective. So near-term, medium-term, long-term commodities allocations, energy infrastructure, electric electrification infrastructure all stand to benefit from the massive amount of investment that's coming from both the private and public sectors.

[00:15:54]>> This is maybe just a last general uh question for the two of you. So if OPEC and other countries uh go ahead and release supply, would that cap the rally in the near term or do you think that the data center uh demand that you both have highlighted, is that going to change the math uh in the near term?

[00:16:13]Well, I would say you look domestically at our electricity generation mix and 42% or so comes from natural gas. And so natural gas prices really haven't budged in the United States during this conflict, which is a tribute to how much infrastructure we have to support natural gas transportation, production, storage, and processing. But in many ways, the upward pressure longer term from data centers is on emerging technologies, the resources necessary to build those batteries, which we've seen significant advancements in both the efficiency as well as a declining cost curve there, but there's still constraints around the inputs there. So, in many ways, the the calculus is evolving in terms of how we go about generating power, how we go about generating power. Each individual data center project is very idiosyncratic.

[00:17:00]Some use GE Venova turbines hooked up to a gas pipeline. Some have a battery back stop. Some have committed to all renewable power sources. Some are being plugged into the grid. So it creates very complex analysis as it relates to what the actual individual beneficiaries are. And to your point about OPEC, I do think logically if you're going to have to reinvest in some of the infrastructure that's been damaged or maybe reorient your infrastructure away from the Hormuz Strait to maybe insulate it somewhat from closures there, that's going to require a significant amount of spending on the part of the Saudis and the other Emiratis. And so in that way, there's not just likely to be a geopolitical premium in oil prices regardless of OPEC's policy, but there's also likely to be some sort of investment premium in the price of oil as these companies and countries have to go about reorienting infrastructure.

[00:17:50]>> Cynthia, I'll just give you the last word. It could be on this topic or anything we've discussed thus far.

[00:17:54]Yeah, I would just summarize or or maybe put an exclamation point to everything that Paul just said, which is I think scarcity is kind of the name of the game when it comes to energy and the demands that we have from geopolitical to AI to infrastructure that's lagging and needs updating to government mandates in investment to defense to everything. uh supply is constrained or there's a concern about availability of supply whether it's oil whether it's renewable whether it's natural resources there's an underexposure to it uh if you're just owning the S&P 500 so remains a big area of opportunity so I think even if oil prices recover here if if it there's more supply that comes into the market we'll see volatility for sure but it's a space that should remain supported uh in the near term Great. That was a great conversation, guys. My thanks to Paul Bioke and Cynthia Murphy. You can catch all of our other content at ETFedge.cmbn.com.

[00:18:54]Thank you for watching.

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