Energy, the environment and the climate are “hot” topics these days. On one end of the spectrum there are people that just want the cheapest energy possible in order to spur economic gains, the environment be damned. On the other end of the spectrum are people who want to severely curtail certain forms of energy in order to “save the planet”, cost be damned. And in between are the rest of us just trying to muddle through our days and stay warm (or cool as geography and season dictate).
Energy (From an Investment Standpoint)
In a nutshell, there are “traditional” forms of energy (powered by crude oil, natural gas, coal) and “new” forms of energy (wind, solar, biomass – whatever the heck that is – etc.). At the moment there are no “winners” in the energy field – at least not from an investment point of view.
In Figure 1 we see the action of 4 ETFs from the “traditional” field. These cover crude oil (NYSE:USO), natural gas (NYSE:UNG), unleaded gas (NYSE:UGA) and coal (NYSE:KOL). While each has tried to rebound at some point in the last year, the wreckage is pretty clear.
Figure 1 – ETFs representing traditional forms of energy (Courtesy AIQ TradingExpert)
Figure 2 displays ETFs representing “alternative” forms of energy. Ticker KWT and TAN represent the solar industry, ticker GEX represents a variety of “alternative” forms of energy and NLR represents the nuclear energy sector.
Figure 2 – ETFs representing alternative forms of energy (Courtesy AIQ TradingExpert)
One thing should be abundantly clear from a simple perusal of Figures 1 and 2 – the energy sector has gotten its clock cleaned in recent years. Looking at “big picture” in Figure 3 we see ticker XLE – an ETF that represents a board swath of energy related companies. The “Boom/Bust” nature of the energy sector is pretty obvious.
Figure 3 – Ticker XLE (Courtesy AIQ TradingExpert)
So what is an investor to do?
My best thought at the moment is “nothing”. OK, I will grant you that is not exactly an inspiring response. But there is a time and a place or everything. Whether “traditional” forms of energy will once again become predominant or “alternative” forms of energy will become ascendant is unclear at this moment in time.
Two things we do know are:
a) This is typically not a “wonderful time of the year” for the energy sector
b) The energy sector typically performs best in late winter into spring
Figure 4 displays the average seasonal trend for Fidelity Select Energy Sector (ticker FSENX). Certainly not every year follows this script exactly (or even closely from time to time). Still, it is clear that we are presently in a “vulnerable” period (late November into early December). Things tend to bottom out in late January/early February.
Figure 4 – Annual Seasonal Trend for Fidelity Select Energy Sector (ticker FSENX)
Summary
I am steering clear of the energy sector at the moment. However, I have been around long enough to know that major economic sectors (think energy, finance, health care, retail, technology) will not soar in perpetuity nor languish forever.
Given that the energy sector has essentially been laid to waste in the past 8+ years I would think that a buying opportunity is not too far off. I plan to check back sometime in late January 2017.
Until then I am just going to try to stay warm.