Capital continues to flow into midstream as the second half of 2021 nears, but despite the sector’s strong position, Morgan Stanley Research is advising clients to be selective in their investments.

Investors have returned to energy broadly and midstream in particular following the November 2020 elections and as commodity prices have moved higher, Morgan Stanley said in a May 26 research paper. There has been fresh capital, as well, drawn to discounted valuations “in an out-of-favor industry, with the current 2.8% energy weighting in S&P still well below its 12% level at 2010-end,” the analysts wrote.

Investors’ improving sentiment has been backed by first-quarter earnings, Morgan Stanley said, with certainty about company outlooks outweighing uncertainty over the ongoing COVID-19 pandemic. The economic reopening of the country is bolstering the near-term demand recovery.

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