Index fund managers and other investors adjusted midstream natural gas holdings in the third quarter to account for the continued rise in share prices for big pipeline and processing plant operators, with several taking profits from the top gainer, liquefied natural gas exporter Cheniere Energy Inc.
The impact of environmental, social and governance issues, or ESG, surfaced in SEC Form 13F filings of institutional investors in the quarter. The two midstream companies that attracted the most investor interest, out of a group of 10 midstream companies in a survey of third-quarter data by S&P Global Market Intelligence, have added renewable energy projects to their portfolio.
The amount of investor interest was evenly split in the group. According to the SEC filings, five of the midstream firms had a net increase in shares purchased by banks and investment funds, and five had a net decrease.
LNG exports soared along with Cheniere's stock
As LNG exports to Europe continued at an intense pace, terminal operator Cheniere's 72.5% gain over the last 12 months made it the best-performing stock in the midstream group, which covers operators of natural gas pipelines, gathering and processing infrastructure and storage fields. Nonetheless, investor interest in Cheniere was neutral, with the number of shares sold almost equal to the number bought, according to the SEC filings.
Cheniere's price move attracted venture capital and private equity fund manager TPG Capital LP to the table. The fund bought a new $244.6 million, or 0.59%, stake in the largest U.S. LNG terminal operator. At the same time, activist investor Carl Icahn's Icahn Capital LP took some profits as Cheniere stock rose, selling 62.4% of its stake and dropping its total ownership in the company to less than 1%.
"LNG remains one area of secular demand growth — although with few pure-play stocks where, in midstream energy, investors can really gain more exposure to this, outside of Cheniere and one or two small caps," Goldman Sachs analysts Michael Lapides and John Mackay told their clients as the quarter was coming to an end.
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Alternative energy projects heighten investor interest
Pipeline giants Williams Cos. Inc. and Kinder Morgan Inc. received the most institutional attention in the group.
"Buy-rated Kinder Morgan and Williams are the two companies that have more exposure to alternative energy," Truist Securities Inc. analyst Neal Dingmann told his clients Oct. 20. "Williams is spending up to $250 million of its capital budget for alternative energy projects. Kinder Morgan already has spent over $460 million on alternative projects and has established a dedicated team to alternative energy projects that has been actively pursuing [renewable natural gas] assets and others."
Alternative energy projects lower the emissions profiles of companies and make them of more interest to investors in funds that focus on ESG.
One fund going against the grain on Kinder Morgan was the quantitative trader, Renaissance Technologies LLC. The high-tech, high-returns shop sold its 5 million shares and exited the stock during the third quarter.
Institutional investor activity in Energy Transfer LP showed the biggest decrease for the group in the third quarter after share prices had gained nearly 53% over the past year. With a sharp increase in market capitalization at companies with stronger stock prices, fund managers often must sell shares in a strong performer to rebalance their fund's holdings to reflect the fund's overall strategy.
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