1 of6/ Energy S&P 500 weight and the path back to respectability.
For most of my 30 year career, Energy has been 8%-15% of the SPX. This cycle it troughed below 2%, less than Utilities or Materials, rendering Old Energy irrelevant for generalist PMs.
For most of my 30 year career, Energy has been 8%-15% of the SPX. This cycle it troughed below 2%, less than Utilities or Materials, rendering Old Energy irrelevant for generalist PMs.
2/ With the sharp recovery from pre-vaccine lows last October, Energy is now back through 3% and above Utes and Materials. Unlike the latter 2 sectors, Energy has a history of a much more sizable SPX weight.
3/ As Old Energy recovers, I don’t think it can or will remain ignored. In the same way we had a massive fundamental and momentum overshoot on the downside, structurally better ROCE can combine with renewed interest to take it back up.
4/ For all the ESG funds that avoided oil on the way down, it will be interesting to assess performance if Old Energy starts doing better and Bubble stocks do worse. Energy can compete on ESG metrics. The companies that do deserve sponsorship.
5/ Clean Energy and Climate concerns are now mainstream and aren’t going away, nor should they. It is possible for Oil & Gas and Clean Energy equities to not only co-exist but thrive, as I expect to be the case.
6/ To be clear, OPEC has ben supportive and won’t always be nor should they be. Oil px vol I think stays high. But Old Energy is much more important to the world economy than its still measly S&P weighting.
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