Tuesday, February 22, 2022

Chart of the Day: Along the Way to Longer-Term (in energy)

In our morning macro and portfolio session we discussed our energy sector exposure and explored whether it's time to take some off the table.

We, recognizing the geopolitical uncertainty presently gripping the energy space, and the amazing runup we've seen in our equity exposure there this year (and last), we did recently hedge our largest position with a March (expiration) put option. 

Beyond that, the question is, what's the longer-term setup for energy and are we properly positioned?

Now, we can get into the constraints placed on the sector around global initiatives to go all renewable over the next few years/decades, rising post-pandemic demand, and so on. Or, we can, for the moment, take a look at what the players are telling us about their plans for expanding capacity in 2022 - versus the last time the price of a barrel was this high:

Oof! Makes sense (that lack of expansion plans) given those above-hinted-to constraints. And, yes, it makes sense to be bullish all things oil going forward (longer-term). 

Along the way to "longer-term", however, we expect bouts of notable corrective action (periods of price declines) as the economy, the capacity to produce oil, and the geopolitical backdrop meander into the future...

At a healthy ~9% overall exposure to energy (and presently hedged against something major to the downside), we're not feeling overly aggressive right here, given the long-term setup. Although, as conditions dictate, we may very well find ourselves adjusting that weighting in the coming weeks -- while still maintaining a long-term "healthy" allocation as we go...

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