ETF Edge - The energy ETF play is just beginning 4/20/26

Episode Date: April 20, 2026

Iran-related risks aside, energy is heading into uncharted territory. But we have a map for your portfolio.      Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

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I'm Christina Ports and Avalis. The war in Iran continues to impact the energy sector, but there is a larger trend developing that investors should address right now. Now, here's my conversation with Paul Bioki, head of fund sales and strategy at SSNC Alps advisors, as well as Cynthia Murphy, Director of Research at Betify. Of course, we have a very topical 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? I mean, we've been talking a lot about there's this. one really unique ETF in the market, ticker Be Wet, which basically is trading in freight futures. And that fund is up over 550% year-to-date. So we, I bet if I started getting a lot of questions about this ETF, like, what is up with it? What kind of performance is this? And it really is a story about shipping costs. So anytime you have some big disruption to shipping, in this case, with the trade-or-hormuz in focus, you see freight future 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 to be wet is really standing up. U.S.O, which is oil futures, is perhaps your most direct exposure to oil prices in ETAF, form as well and competing funds is up dramatically as 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 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 continued diversification opportunity? Well, if you look at the S&B 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.

States. And increasingly, what's become more relevant is the LNG 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 focus 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 Strait of Hormuz 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.

Okay, I'm actually going to take that thought. So I'm going to open it up to the both of you. So let's say, okay, we find a resolution, C-Spire, great. But the problem seems to be, 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 going to start with you.

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 theme. And then you also had supply concerns because we're just coming out of the pandemic and all of a sudden demand 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 becomes an opportunity not only for infrastructure investments like in ETF, like ENFR, who captures that moment really well, but also in terms of other sources of energy. So it comes to to mind things like nuclear energy and all sorts of other natural resources, real assets, conversation. So it really becomes an opportunity that is much broader than just your oil conversation. Paul? 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 build out, they were already expected to be in a deficit for as far as the eye could see. 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 under exposed 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 we're scrambling even ahead of the conflict to secure their own security around power generation. So in the United States, electricity demand growth was about 0.4% annually over the course of the past 25, 30 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 into batteries, the critical minerals to all of that infrastructure build out. 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 a 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, that will say the tickers, ENFR and AMLP, how much of that actually shows up in earnings versus how much is just a fear trade that actually fades? Well, what's interesting about energy infrastructure is that those companies aren't 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 and or natural gas prices doesn't necessarily impact their revenue. They tend to be somewhat stable relative to, say, refiners and E&P 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 LNG as opposed to Qatar, coming to the United States for crude oil as opposed to Saudi Arabia or the Middle East, that will and should long term create new revenue opportunities for the energy infrastructure industry, which, by the way, is very North America oriented. 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. We often talk about nuclear on air, and yet it seems a little bit out of reach for some viewers. Can you just share your outlook specifically within that sector?

Yeah, to Paul's point, it's a completely different return stream. So I wanted to mention on things like AMLP, for example, my colleague, Stacey Morris, calls it the shipping and handling part of the energy story. So it's that volume-based and not oil price-based kind of performance driver. A nuclear is interesting. Like there's an ETF and UKZ, for example, that it's really capturing that opportunity set. It's amazing how just a general opinion about nuclear power has shifted over the last few years. And it has to do with need.

If you think about, we're talking about a conflict that is putting all these energy, 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 of years. 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. If I could, I want to push back a little bit just because it seems like whenever we're building out that these data centers, there's pushback from NIMBY, just not in my backyard, the health concerns, the environment. And so when we talk about even the smaller nuclear capabilities that maybe met us putting forward or other data center builders, it seems still to be a longer term frame and possibly may not be done within the next five to 10 years. So is that something we recommend to our investors when it's not in the immediate term?

Cynthia. Well, I believe in an investment. I'll let Paul speak to it because it's way smarter on this. But 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. So I think that is not a detractor. It's actually a compelling fact that this is a multi-year process.

Paul? 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 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 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, 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. 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.

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. Yeah, ITA is kind of a classic aerospace 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 GlobalX, that have the cybersecurity 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 Lockheed Martin and some of the traditional names that you will find in ITA. But it's a space that, again, you know, anytime you have geopolitical heat, it puts this kind

of theme on the map, but it's another big growth area because there's so much new technology coming up and so much investment coming into this space. A lot of governments making commitments for much more investment in the next five to ten years. So again, another big growth theme this year. And Paul, I know you listed, you talked about the time frame of, you know, 20, 25 years, you know, and 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 five to 10 year period of people can't wait that long? Yeah. So I touched on Elfie, which is an electrification infrastructure strategy. 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 CAPEX commitments from utilities to accommodate growing electricity demand, specifically earmarked to data centers. 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 apace. And again, these are categories investors don't typically have a lot of exposure to. So in many ways, what Cynthia is talking about, what you're talking about with defense spending and the massive range. ramp up and 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 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, electrification infrastructure, all stand a benefit from the massive amount of investment that's coming from both the private and public sectors. This is maybe just a last general question for the two of you.

So if OPEC and other countries go ahead and release supply, would that count, the rally in the near term, or do you think that the data center demand that you both have highlighted, is that going to change the math in the near term? 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 attribute 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 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. Some use GE-Vernova turbines hooked up to a gas pipeline.

Some have a battery backstop. 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 straight 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 Emirates. 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. Cynthia, I'll just give you the last word. It could be on this topic or anything we've discussed thus far. Yeah, I would just summarize 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. 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 under exposure to it if you're just only the SMP 500. So it remains a big

area of opportunity. So I think even if oil prices recover here, if there's more supply that comes into the market, we'll see volatility for sure, but it's a space that should remain supported in the near term. That does it for ETF Edge, the podcast. Thanks for listening. Join us again next week or head to etfedge.c.com. Over the last few decades, technology has transformed our in amazing ways. Through it all, InvescoQQQETF has connected investors to the forefront of innovation. Access the future today with InvescoQQQ. Let's rethink possibility. There are risks when investing in ETFs, including possible loss of money. ETF risks are similar to those of stocks. Investments in the tech sector are subject to greater risk and more volatility than more diversified

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