🛢️ Byte #39: Designing an Energy Portfolio for Yield, Resilience, and Growth

Dear Smart Investor,

Last week, we explored why I remain constructive on energy despite persistent narratives around oversupply. This week, I want to shift from macro views to portfolio construction - specifically how I’m positioned across the energy value chain and the reasoning behind that allocation.

Energy is not a single trade; it’s an ecosystem. Understanding where each piece fits helps investors balance yield, growth, and risk.

1️⃣ Upstream – The Producers

These companies explore and produce oil and gas, riding the volatility of commodity prices. My exposure here remains deliberate and concentrated in operators with strong balance sheets, disciplined capital allocation, and low-cost production.

Headwater Exploration (CDDRF) represents a focused growth-oriented position. Its Clearwater assets in Alberta operate at structurally low production costs relative to many North American peers, supporting resilient cash flow generation even during periods of softer oil prices. That said, like all upstream companies, performance remains sensitive to commodity cycles and capital discipline.

Canadian Natural Resources (CNQ) provides diversified production across conventional oil, heavy oil, and natural gas. Its scale, integrated infrastructure, and long-lived reserve base allow for relatively stable operating margins and consistent shareholder returns through cycles. I recently added to this position as a long-term core holding, viewing it as a low-cost operator capable of sustaining profitability across a wide range of pricing environments.

2️⃣ Midstream – The Toll Roads of Energy

Midstream remains the foundation of my energy exposure. I continue to hold Enterprise Products Partners (EPD), ONEOK (OKE), and MPLX - businesses that generate relatively stable cash flow through fee-based contracts tied to transportation, processing, and storage infrastructure.

These companies function as the “toll roads” of the energy system, benefiting from long-term agreements and inflation-linked revenue structures. While not immune to risks such as throughput volumes, financing conditions, and regulatory developments, their cash flow profiles historically demonstrate greater resilience than commodity-sensitive segments.

Despite strong performance in recent periods, valuations remain reasonable relative to cash flow durability, and many continue to offer attractive distributions supported by solid balance sheets.

3️⃣Downstream – Areas I’m Currently Avoiding

Refiners represent the downstream end of the energy value chain, converting crude into finished products. While they play a critical role in the ecosystem, I currently avoid allocating to refiners. Their earnings are often highly sensitive to crack spreads and short-term margin fluctuations, which can introduce volatility that doesn’t align with my focus on predictable, cash-generative businesses and income stability. This reflects my portfolio structure and risk preferences rather than a negative long-term view on the segment itself.

4️⃣ Complementary Exposure – Infrastructure and Renewables

To broaden the portfolio beyond traditional hydrocarbons while maintaining an income-oriented structure, I recently added Brookfield Renewable Partners (BEP) and Brookfield Infrastructure Partners (BIP).

BEP provides exposure to global renewable generation across hydro, solar, and wind assets. Recent operating performance reflects continued capacity expansion and steady Funds From Operations (FFO) growth, supported by long-term power contracts. While renewables introduce considerations such as interest rate sensitivity and capital intensity, the platform offers diversified participation in long-duration energy transition themes.

BIP complements my midstream holdings through a broader infrastructure mandate spanning utilities, data infrastructure, and transport assets. Its contract-driven revenue model resembles midstream economics, emphasizing predictable cash flow and inflation-linked pricing.

I view both Brookfield partnerships as long-term compounders where disciplined accumulation and reinvested distributions can drive total return over time.

Putting It Together – A Portfolio Built Across the Value Chain

My current energy and infrastructure positioning reflects a multi-layered approach:

• Upstream for measured exposure to commodity cycles and resource upside

• Midstream as the core source of resilient, income-oriented cash flow

• Global infrastructure and renewables for long-duration growth and diversification

Several holdings have appreciated significantly from my initial entry points, which naturally lowers current yield levels. However, my focus remains on owning durable businesses across cycles rather than attempting to time precise entry prices. I continue to prioritize incremental additions during volatility while maintaining disciplined position sizing.

Looking ahead to 2026-27, I believe a combination of capital discipline, constrained supply growth, and expanding global infrastructure demand could continue to reward patient investors positioned across multiple segments of the value chain.

This isn’t a recommendation to buy or sell - it’s about sharing how I think through structuring an energy and infrastructure-oriented portfolio and the reasoning behind my positioning. Always conduct your own research and consider your individual financial circumstances before making investment decisions.

Keep investing smarter,

Pooja