Investors Rotate Into Energy

November is on track to be the second best month in the history of the American Energy Independence Index (AEITR)Through yesterday, the index is up 27% for the month. April’s 39% bounce off the March lows is the biggest, but with the index having doubled in value since then, November is on track to be the biggest points move ever. It’s eclipsed the June high, and has recovered to 12% YTD (the S&P500 is +16% YTD).  

Jim Cramer has even offered some reasons to buy – describing President-elect Joe Biden as “the counterintuitive savior of the oil industry”. He’s echoing a point we’ve made – that Democrat policies favor higher energy prices (see Why Exxon Mobil Investors Might Like Biden). Combined with a more cautious attitude towards growth projects, an era of growing free cash flow is at hand for midstream energy infrastructure – a trend that’s remained in place all year and is returning cash to shareholders (see Pipeline Buybacks Are Coming). 

Although energy is enjoying a strong month, fund flows are not yet following which suggests a healthy skepticism remains. Investors in this sector have seen too many false dawns, and remain cautious. Nonetheless, with recently announced buybacks being big enough to counter the typical outflows of the past few months, it won’t take much of a shift by investors to cause net buying.  

The vaccine news triggered the rally, but the fundamental outlook had been improving for months before that. Other than Energy Transfer (ET), all paid dividends as expected following 3Q earnings. The components of the AEITR now yield just under 8% on a market-cap weighted basis – almost 4X the S&P500. 

The energy sector is the biggest beneficiary of the huge shift under way from technology to value (see The Big Rotation Begins). Since the ratio of the QQQ to the Russell 2000 (IWM) crossed its 200-day moving average on November 9th, when Pfizer’s vaccine news broke, it has moved decisively lower. 

The North American pipeline sector has a float-adjusted market cap of around $375BN, less than a fifth of tech giant Apple (AAPL). Exxon Mobil is $175BN. Energy has sunk to below 3% of the S&P500. 

The strong performance of technology stocks in recent years means that if just a small percentage of investors switch from tech to energy, it’s likely to move higher given their relative size. 

Meanwhile, we can look forward to incoming Climate Change Czar John Kerry overlooking his own outsized carbon footprint while lecturing the rest of us about ours.  

We are invested in all the components of the American Energy Independence Index via the ETF that seeks to track its performance.

 

 

The post Investors Rotate Into Energy appeared first on SL-Advisors.

Latest

How Strong or Weak is the Consumer Halfway Through 2024?

Mean reversion is one of the most powerful and predictable phenomena inside markets.

Trading Zone: Hit the Brakes, Transports flash major Warning signal

Watch Joe Tigay and Brian Stutland, co- portfolio managers...

Market Matters: Eye-Opening Inflation & Looking at Volatility

Joe Tigay and Brian Stutland, co- portfolio managers of a hedged-equity strategy for Catalyst Funds, discuss the latest inflation expectations, volatility, Nvidia, and much more in the latest edition of Market Matters. 

The Largest Wealth Transfer in History Has Begun – Brands Benefit Most

The opportunity in front of investors is unlike anything we have ever seen because the size of the current wealth transfer is unprecedented in world history.

Newsletter

Don't miss

How Strong or Weak is the Consumer Halfway Through 2024?

Mean reversion is one of the most powerful and predictable phenomena inside markets.

Trading Zone: Hit the Brakes, Transports flash major Warning signal

Watch Joe Tigay and Brian Stutland, co- portfolio managers...

Market Matters: Eye-Opening Inflation & Looking at Volatility

Joe Tigay and Brian Stutland, co- portfolio managers of a hedged-equity strategy for Catalyst Funds, discuss the latest inflation expectations, volatility, Nvidia, and much more in the latest edition of Market Matters. 

The Largest Wealth Transfer in History Has Begun – Brands Benefit Most

The opportunity in front of investors is unlike anything we have ever seen because the size of the current wealth transfer is unprecedented in world history.

A Showery Spring: April 2024 HANDLS Monthly Report

While March signaled gains, April proved challenging, culminating in widespread losses.
Simon Lack, Portfolio Manager
Simon Lack, Portfolio Manager
Simon Lack is Founder and Managing Partner of SL Advisors, LLC. Mr. Lack is Portfolio Manager of an energy and infrastructure fund at Catalyst Capital Advisors LLC. Mr. Lack’s experience includes: Managing Director, JPMorgan Global Trading Division and CEO, JPMorgan Incubator Funds. Mr. Lack has authored The Hedge Fund Mirage: The Illusion of Big Money and Why It’s Too Good to Be True (January 2012) and Bonds Are Not Forever: The Crisis Facing Fixed Income Investors (September 2013).

How Strong or Weak is the Consumer Halfway Through 2024?

Mean reversion is one of the most powerful and predictable phenomena inside markets.

Trading Zone: Hit the Brakes, Transports flash major Warning signal

Watch Joe Tigay and Brian Stutland, co- portfolio managers of a hedged-equity strategy for Catalyst Funds, discuss May's CPI report & FOMC meeting, volatility,...

Market Matters: Eye-Opening Inflation & Looking at Volatility

Joe Tigay and Brian Stutland, co- portfolio managers of a hedged-equity strategy for Catalyst Funds, discuss the latest inflation expectations, volatility, Nvidia, and much more in the latest edition of Market Matters.