Greg Reid

Greg Reid is a portfolio manager at Westwood Holdings Group who manages MDST, the Westwood Salient Enhanced Midstream Income ETF. Greg spent over two decades in the energy sector, including time at Morgan Stanley and several energy-focused investment firms, before joining Westwood. His career has spanned the full cycle of energy investing, from the shale revolution through the oil price collapse of 2014-2016 and the COVID-era crash that sent crude oil prices briefly negative.

On this episode, Greg talks with Brad about why midstream energy companies are fundamentally different from other energy investments, how MDST generates yield through covered call strategies on midstream positions, and what the energy transition means for pipeline companies over the next decade.

Midstream 101: Why It's Not What People Think

Greg starts by addressing the biggest misconception about midstream energy: that it's a commodity price play. Unlike exploration and production companies whose earnings swing dramatically with oil and gas prices, midstream operators are essentially toll collectors. They own pipelines, processing plants, storage facilities, and terminals. Revenue comes from long-term contracts with volume-based or fixed fees, not from the price of the commodity flowing through the pipes. Greg likens it to owning a toll road: you get paid based on how many cars cross the bridge, not on the price of the cars.

The midstream sector has also undergone a massive structural transformation over the past decade. After the MLP (Master Limited Partnership) boom and bust, many of the largest midstream companies converted from MLPs to C-corporations, simplifying their governance and eliminating the K-1 tax headaches that kept many institutional investors and retail advisors away. Companies like Enterprise Products Partners, Energy Transfer, and Williams Companies now have investment-grade balance sheets, coverage ratios well above 1x, and free cash flow yields that Greg describes as the healthiest in the sector's history.

How MDST Enhances Yield

MDST starts with a concentrated portfolio of midstream equities, typically holding 20 to 30 names. The base dividend yield from these companies generally runs in the 5-7% range. On top of that, the fund sells covered call options on individual positions to generate additional income. Greg explains that midstream stocks tend to trade in relatively tight ranges because of their infrastructure-like characteristics, which makes covered call writing particularly effective. The options premium adds meaningful yield without dramatically capping the upside, since these stocks don't typically have the explosive moves you'd see in high-beta sectors.

The covered call strategy is managed actively, not mechanically. Greg and his team make decisions about which positions to write calls on, at what strike prices, and with what expirations based on their views on individual company catalysts and the broader volatility environment. If a stock is approaching a potential positive catalyst like an earnings beat or asset sale announcement, they'll avoid writing calls on that position to preserve the upside. The combined yield from dividends plus options premium puts MDST's distribution north of what the base portfolio alone would generate.

Energy Transition: Tailwind, Not Headwind

Greg pushes back hard on the idea that the energy transition threatens midstream companies. His argument: natural gas is the critical transition fuel, and pipelines are essential infrastructure for getting it from production basins to power plants, LNG export terminals, and industrial users. The build-out of renewables actually increases natural gas demand because gas-fired power plants serve as the backup when the wind stops blowing and the sun stops shining. And as the US becomes one of the world's largest LNG exporters, the demand for pipeline capacity continues to grow.

Beyond gas, Greg points to emerging opportunities in carbon capture and hydrogen transportation that would use existing pipeline infrastructure. Midstream companies are already exploring how to repurpose or expand their pipeline networks for these new energy carriers. He also notes that permitting new pipelines has become nearly impossible in many jurisdictions, which means existing infrastructure is becoming more valuable over time as demand grows against a fixed supply of pipeline capacity.

Key Takeaways

• Midstream companies are toll collectors with fee-based revenue from long-term contracts, not commodity price plays. Their earnings stability is closer to utilities than to E&P companies.
• MDST holds 20-30 midstream names and enhances the base 5-7% dividend yield with actively managed covered call writing, with call decisions driven by individual company catalysts rather than mechanical rules.
• The MLP-to-C-corp conversion wave eliminated K-1 headaches and simplified governance, making midstream equities accessible to a broader range of institutional and retail investors.
• Natural gas demand is increasing due to the energy transition, not decreasing, because gas-fired power plants serve as backup for intermittent renewables and LNG exports are booming.
• Permitting constraints on new pipeline construction make existing midstream infrastructure increasingly valuable as demand grows against a fixed supply of capacity.

Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.