Market Chatter: Exxon Inferior to Pipeline Companies Like Enbridge in Energy Investing

By Staff,

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Pipeline companies offer the best returns in energy for investors seeking to cash in on the U.S. shale boom while avoiding the volatility of a commodity market that's seen natural-gas prices reach a 10-year-low and crude bounce above US$100 a barrel, Bloomberg reported.

The BLOOMBERG RISKLESS RETURN RANKING shows pipeline companies over the past five years have provided triple the risk-adjusted return of companies that produce and refine oil and gas, such as Exxon Mobil Corp. ( XOM ), the next best group. Enbridge ( ENB ) Inc. of Canada leads companies on the Bloomberg World Pipelines Index, which returned 2.9% when adjusted for price swings. Producers focused on finding and extracting oil and gas gained 0.5%.

Bloomberg said pipelines are the toll roads of the energy industry, inoculated against price swings thanks to long-term contracts that lock in fees based on the volume of products they ship. Demand for shipping is expected to grow as oil and gas drilling accelerates in U.S. shale fields. With energy's best returns and lowest risk, pipelines have attracted investors such as Goldman Sachs Group Inc. ( GS ), which owns 19.1% of Kinder Morgan Inc. ( KMI ), the parent of the second-biggest U.S. pipeline company.

"These are companies that have multi-year contracts involving products that are essential to the functioning of society," said Randle Smith, a portfolio manager with Duff & Phelps Corp. ( DUF ) who helps manage $4.9 billion of global utilities and infrastructure investments, including more than 2 million Enbridge shares. "They're not taking on commodity price risks, so it's a very secure business model."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright (C) 2014 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing Commodities
Referenced Stocks: DUF , ENB , GS , KMI , XOM

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