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Flows to midstream energy ETFs slowed in March amid oil market softness

Flows to midstream-focused energy exchange-traded funds decreased during March as crude oil broke below $50 per barrel and U.S. inventories continued to build, but one infrastructure-specific fund posted a significant gain in inflows.

Data for funds tracked by S&P Global Market Intelligence showed that total net flows to 11 midstream-focused ETFs amounted to $439.7 million, down $134.4 million from just over $574 million in February, with only the Global X MLP & Energy Infrastructure ETF and the InfraCap MLP ETF showing increases in new money for investors. The Alerian MLP index, a bellwether for the midstream oil and gas sector, saw net inflows cut almost in half, from $438.6 million in February to $222.7 million in March.

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One of the macro drivers for midstream ETFs in March, according to Tortoise Capital Advisors LLC managing director and portfolio manager Rob Thummel, was crude oil inventory builds. "In March, you saw one of the largest builds in crude oil inventories on a weekly basis early in the month and then a couple other builds throughout the month," he said in an interview.

Lower oil prices also factored into the data for March. "I do think the money coming into the broader plain-vanilla midstream MLP ETFs has slowed a little bit since the beginning of the year, and I think that's likely because we've seen more oil volatility," said Jay Jacobs, research director at Global X, which manages several midstream-focused funds.

Out of the 11 ETFs tracked, Global X's MLP & Energy Infrastructure fund experienced the biggest gain in net new money from investors in March, with an $88.2 million increase in net inflows.

"That ETF is about 24% MLPs and 76% general partners and energy infrastructure corporations, and that is actually a fund that is designed to be a bit more of a total-return play on the MLP space, so I think it's interesting that, as oil prices were selling off, some investors came in looking to play the rebound in the long-term U.S. energy infrastructure story," Jacobs said.

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Net flows to 12 broader energy ETFs tracked by S&P were negative in March, though that performance was attributable to a single First Trust energy product.

"That had nothing to do with demand for that product and more with the fact that First Trust rebalanced its five ETFs in a mass allocation product and replaced energy with banks based on momentum characteristics," said Todd Rosenbluth, director of mutual fund and ETF research at CFRA. "You can't discard it, but it hides some of the great trends that were going on in the Energy Select Sector SPDR Fund."

The fund took the winning spot in the group, with just over $238 million in net inflows. Exxon Mobil Corp. and Chevron Corp. are its top-two holdings on a list of 36 energy names. The companies together accounted for over one-third of its total portfolio as of April 7.