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Midstream ETFs pulling in funds despite poor sector stock performance

Midstream energy stocks lagged behind utilities and broader indexes in May even though exchange-traded funds tracking the sector took in more investments than broader energy ETFs.

The Alerian MLP ETF, based on the bellwether index for the oil and gas pipeline master limited partnership sector, saw net inflows increase from $59.5 million in April to $97.5 million in May. Still, the index by the end of the month had dropped to its lowest level of the year, down 5.3% since the end of 2016 on a simple price-return basis.

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"During the first quarter MLPs dodged the overall energy complex malaise," Barclays research analysts said in a June 5 note. "In April there were indications of contagion. In May the rash out in full bloom."

Despite the Alerian's downward market movement, midstream funds continued to show more resilience to lower oil prices than broader energy ETFs. Data for funds tracked by S&P Global Market Intelligence showed that 11 midstream-focused ETFs had total net inflows of just over $270 million for the month, up from $168 million in April.

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A dozen broader energy funds tracked by S&P Global Market Intelligence had $3 million in net outflows in May after $531 million of outflows in April.

Meanwhile, utilities ? primarily electric and gas ? posted a 10.1% gain in the first five months of 2017, as measured by the S&P 500 utilities index.

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"MLPs have dropped two weeks in a row, have declined 12% from their January peak, have produced negative total return YTD, and have produced just 3.2% total return the last 12 months," CBRE Clarion Securities analyst Hinds Howard wrote in a June 4 blog post. "Adding insult to injury ... utilities and stocks again outperformed."

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