COTW: Buying Energy When it is Underrepresented

COTW: Buying Energy When it is Underrepresented

The chart below can be downloaded here.

 

Over the last 30 years the Energy sector’s weight in the S&P 500 (teal line) has ranged from 5% to over 15%, with the average around 9%. As of today, weak relative returns of the last several years have driven down that share to historic lows, which begs the question – is it time to buy Energy?

 

On the surface, the answer is “yes”. Forward 5-year relative returns of Energy vs. the S&P 500 (shaded grey area) have been positive – in some cases significantly so – when Energy has been underrepresented (see 2000 to 2004) and vice versa when Energy has been overrepresented (early 1990s, 2008 to 2012). While relative valuations may not be as compelling in this cycle & there are other risks, we think investors should view the space through a contrarian lens.

 

 

 

IMPORTANT DISCLOSURES

SpringTide Partners, LLC is a Registered Investment Advisor with the state of Illinois and other states jurisdictions where required. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. All information contained herein is for informational purposes only and does not constitute a solicitation or offer to sell securities or investment advisory services. All investing carries risk including risk of principal loss. All statements made on this website are opinions of SpringTide Partners, LLC and are subject to change. SpringTide Partners, LLC assumes no responsibility towards the accuracy of the data included. Statements made on website shall not constitute investment advice.

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