How Arbor Capital is Proactively Addressing New Energy Concerns and Future Trends
Long-term fundamental themes are something we think about all the time in the context of energy. Trying to gauge where the price of oil or natural gas may go in the short- or long-term is something we try to handicap in light of those themes. In this article, I’d like to share Arbor Capital’s thoughts.
Limited refining capacity, a strong Permian basin oil field, efficient oil/gas pipeline movement, and electric vehicles are continual themes for investment. The war in Ukraine may result in an “energy bifurcation” theme where a global market becomes less efficient from boycotts of Russian oil and gas, resulting in higher prices long-term.
Since early 2020, Arbor Capital invested in energy upon the establishment of the Global Brands – Value portfolio. There were solid companies that were cheap, paid generous dividends, with impressive free cash flow. We were also open to making investments in companies that were focusing on electric vehicles, specifically high-margin pickup trucks and SUVs. So, we bought and have patiently held companies such as Valero, Chevron, Kinder Morgan, and General Motors through the COVID-19 pandemic and supply chain issues for over two years.
More Recent Energy Allocations
More recently, Arbor allocated to energy-related equities in the second half of 2021:
- To enhance our play on electric vehicles, we added high dividend yielding copper miner Southern Copper in September 2021 to our Global Brands – Value equity portfolio.
- In October 2021, we added the small start-up speculative battery maker Enovix to our Global Brands – Growth portfolio.
- In December 2021, we added another US-based oil/gas exploration company, EOG Resources, to our Global Brands – Value equity portfolio.
Our Energy Strategy Outside of Equities
Over time, we have made allocations to energy in other strategies outside of equities, as well:
- In mid-2021, the Alerian MLP ETF, which holds pipeline and storage companies, was included when we established our high yield, high risk Alternative Income strategy.
- In early 2022, we added a commodity-focused ETF to our Alternatives Strategy.
- Our ESG strategy was also revised in early 2022 and now includes an allocation to the Global X Uranium mining ETF, as nuclear will be one component of a greater energy transition.
Looking to the Future of Energy
Looking forward, the price of oil and natural gas may fluctuate, sometimes wildly. The impact of energy prices on consumers may increase, then decline, accordingly. However, core fundamental themes will most likely evolve over time more slowly. The key – as part of a diversified portfolio – is to make investments either in individual equities or ETF to ensure investors have some level of exposure.
Do you have questions about anything covered here? Feel free to reach out to your Arbor advisor anytime. If you’re not currently a client and you’d like to schedule a discussion, you can do so here. We look forward to hearing from you!