Eq: Energy (126)
While ESG has continued to come under fire from both politicians and regulators, ESG fund assets have continued to grow. In fact, sustainable fund assets grew 0.84% through November, which is better than the 1.1% decline for all funds, according to Morningstar. However, the performance of these funds has not been great; but that's not due to political or regulatory pressure. According to analysts, the reason that ESG funds have underperformed this year is that they missed out on the best performing sector this year, which was energy. ESG funds typically don’t hold stocks of oil companies such as ExxonMobil and Chevron that have performed so well this year. According to Morningstar, the average large-cap stock ESG fund has lost nearly 20% through Dec. 21st. That’s about 2.4% worse than the S&P 500 Index. The question is, will that continue into 2023? The answer depends on whether oil companies will continue to outperform. Energy strategists differ in their opinions. Morningstar energy strategist Stephen Ellis thinks it’s unlikely, since “we see the stocks as fairly valued to expensive,” while Fidelity portfolio manager Maurice Fitzmaurice wrote recently “that oil and gas demand should keep growing as effects of the Covid pandemic pass, while lost supplies from Russia prod oil prices to rise.”
Finsum:The performance of ESG funds next year will likely depend on whether oil companies will continue to outperform.
Analysts Increasing Estimates for Energy Stocks
Written by FINSUM
There’s no question that energy was the best-performing sector this year in what was a dismal year for equities. But how will the sector fare in 2023? If analyst expectations are correct, we could be in for another great year for energy stocks. According to FactSet data, analysts have increased estimates for only two sectors next year, energy and utilities. EPS estimates for energy stocks have seen a 4.4% rise in expectations, while utility stock estimates have risen 0.9%. This is in stark contrast to the other 9 sectors in the S&P 500, where analysts have been trimming their earnings per share forecasts for 2023, with downward revisions between September 30 and November 30. Due to these upward earnings expectations and relatively cheap valuations, energy stocks are poised to continue their rise next year, even as oil prices have pulled back from the year’s highs. Oil companies have been cautious despite the surge in oil prices earlier in the year. CIBC Private Wealth U.S. Sr. Energy Trader Rebecca Babin told Yahoo Finance Live that companies “are not making rash decisions about increasing production based on swings in oil prices. They are less levered. They are more disciplined, and they are super focused on returning to cash.” Plus, market strategists expect oil to move higher next year with China expected to reopen its economy after years of COVID closures.
Finsum:Energy stocks are expected to continue to move higher next year due to increased analyst estimates, relatively cheap valuations, and higher demand for oil by China.
Those darn liberals seem to burning energy on something again – at least according to the Republican staff of the U.S. Senate Committee on Banking, Housing and Urban Affairs, stated mondaq.com.
The recently released report, entitled "The New Emperors: Responding to the Growing Influence of the Big Three Asset Managers," delved into the nuts and bolts of their concerns; namely that large asset managers are leveraging their proxy voting power in the name of "liberal social goals." They’re described in the report as more broadly including diversity and inclusion and ESG considerations.
Claims lodged by the report: the application of power, in the form of significant voting influence on corporate policy rather than making the most of getting the most of investor profits by the “Big Three,” BlackRock, State Street and Vanguard.
A regulation entitled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” (the “Final Rule”), was published by the U.S. Department of Labor, according to usbenefits.law.
The Final Rule didn’t leave much to the imagination. Numerous times. the DOL, stressed the regulation was focused mainly on extracting and fixing the impact of ESG investing by plan fiduciaries.
You could say when it comes to blue plate specials, ESGs are on the menu. Make it two. Take a look at the environment. The GOP’s gearing up and, almost inevitably, when the new year hits, a gaggle of House committees will kick off hearings to deal with what some members of the grand party see as the threat ESG poses to a host of issues: investor returns, the country’s oil and gas industry, energy security, universal equal opportunity, according to forbes.com.
And, hey, stick around. More very well might be lurking around the corner. Then there’s Europe’s stake. With assets managers taking in fresh regulatory proposals that could send the Europe’s largest ESG fund category into a tailspin, there’s a plan by its markets watchdog, ESMA, according to linkedin.com. The upshot of the plan: set quantifiable ESG and sustainable investing standards, which is compelling portfolio managers to think twice about the way they design and market an ESG fund class – Article 8.
JPMorgan Strategist: Time to Sell Energy Stocks
Written by FINSUM
The energy sector has been the top-performing sector so far this year, but it may be time to sell. That is according to JPMorgan's Marko Kolanovic. Kolanovic, who is JPMorgan’s chief global markets strategist, recommends that investors sell out of energy stocks to capitalize on the performance divergence between oil and energy stocks. Oil prices surged more than 72% at the beginning of the Russia-Ukraine war, but have since plunged almost 50% and are now down for the year. The decline in WTI and Brent Crude Oil can be seen at the pump as the average price for a gallon of gas in the U.S. fell to $3.32 on Friday after previously hitting $5 earlier in the year. However, as oil prices have fallen, oil stocks are still trading near their multi-year highs. Historically, oil prices and energy stocks have been highly correlated, but the large difference this year and a broad pullback in the equity market could result in a selloff in energy stocks. Kolanovic believes that investors could take advantage of this by selling energy stocks now and then buying them at a lower price before the next upswing.
Finsum:JPMorgan strategist recommends selling energy stocks now before a major pullback that could be driven by the divergence between falling oil prices and rising energy stocks.
CEOs of top U.S. energy companies are speaking less about climate and carbon emissions, according to a Bloomberg analysis of quarterly conference calls held by 172 American oil and gas companies. The data showed how terms such as “climate change”, “energy transition” and “net zero” have been coming up with less frequency in recent conversations with analysts and investors. For instance, in fossil fuel suppliers’ conference calls this quarter, the use of language that alludes to environmental, social, and governance topics was down by more than 40% from peak levels in 2021. In fact, mentions of the terms “climate change,” “energy transition,” “emissions,” and “renewables” have all decreased. The analysis was based on an automated search of terms related to ESG issues in transcripts of quarterly earnings calls from publicly traded energy companies that hold calls in English. Prior to this year, energy companies were under pressure to slash greenhouse gas emissions, which led to a spike in discussions about ESG. But with fossil-fuel profits now soaring, ESG mentions have fallen, signaling that the industry’s focus on ESG might be fading.
Finsum:With fossil-fuel profits soaring, U.S. energy CEOs are speaking less and less about ESG.
FINRA conference just can’t get enough Reg Bi
Written by FINSUM
Not only did the SEC’s Regulation Best Interest (Reg BI) take effect about two years ago, since then, its had tongues wagging, according to questce.com. The topic continued to flash plenty of energy at FINRA’s recent 2022 Annual Conference.
So, what insights have been gained since Reg Bi was implanted and, to this point, what’s clicked for firms? Have any conflicts been isolated?
A few pieces:
1.) FINRA will be Conducting Deeper Reg BI Exams
FINRA wasted no time acknowledging that, down the road, it will undertake deeper reviews of Reg Bi and Form CRS.
2.) Audits Unveiled Some Good (and Bad) Behaviors
3.) Product Decision Trees Should be Documented
4.) Training/Policies Needs to go Beyond Rule Definitions
Meantime, senators recently were informed by Gary Gensler, chair of the Securities and Exchange Commission, that additional resources are required by the agency, according to thinkadvisor.com. The exam division’s “work is essential to ensuring strong compliance across the board,” including “work to test for compliance with Regulation Best Interest,” he continued.
The enforcement division’s “doing more with less,” Gensler said in testimony before the Senate Banking Committee, the site continued.
The tip line was burning in fiscal 2021, with the agency handling 46,000 tips, complaints and public referrals, the chair added. Five years earlier, that number stood at about 16,000.
Sustainable spend report a new wrinkle for ESGs
Written by FINSUM
A little nip and tuck?
Well, let’s just say someone hit refresh on ESGs, culminating in the sustainable spend report, which provides an overview of the organization’s ESG performance, according to tealbook.com. How? Details…details, eh? Well, by dispensing detailed reports of spend with ESG certified supplies.
Emissions reduction, sustainable sourcing, energy management, and animal welfare are among ESG certifications.
Thanks to this feature, TealBook customers with Elite license, make out. That’s because – with no extra effort -- this features lifts spend data capabilities, the site continued. On top of that, customers can filter by time period, take a gander at spend based on ESG category through the report.
The site describes the sustainability spend report as “a powerful new tool that enables customers to make procurement decisions that align with their organization’s policies and business strategies.”
To help define your ESG strategy, goal setting is integral, according to getgoallab.com.
To start establishing its ESG objectives, your company can keep a few steps in mind:
*Understand the value of ESG goal setting
*Assess your ESG baseline before you set your goals
*Familiarize yourself with and set SMART (Specific, Measurable, Achievable, Relevant and Time) goals.
*Measure ESG goals and set timelines by creating KPIs
*Share and announce your ESG goals
Just after many Wallstreet firms were predicting oil prices to skyrocket passed $130 the jets have started to cool and oil prices are falling. Oil dipped below $100 a barrel this week and the two biggest factors are demand destruction and China’s latest Covid-19 outbreak. In the U.S. the Ukraine war and high gas prices are deteriorating the demand for commodities and demand is beginning to weaken which in turn affects energy prices. Demand will drop by 1.4 million barrels a day according to Rystad Energy. Additionally, the U.S. is a strong dollar is making it hard to purchase oil-backed goods abroad. China’s lockdown in Shanghai drastically reduces global demand and could be a threat in the intermediate future. If Bejing follows suit it could be devastating.
Finsum: Oil investors should watch out for Russia, which is starting to feel the pressure on its economy.
Oil has been dominating headlines but natural gas prices skyrocketed to a t 13 year high on the back of Russia’s war on Ukraine. To add to the fodder temperature forecasts for spring are remarkably low which means homes will be utilizing more natural gas in order heat homes. Overall prices are $8.05 per million British thermal units and are up 108% through the year already. Financial markets aren’t sure this price increase is permanent and Citi has only raised their end price target to $4.60 by the end of 2022.
Finsum: Keep an eye on natural gas bonds as just like oil surging, it could mean good things for companies ability to repay.
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Oil prices have begun to stagnate just a hair, but they are still high enough to spur lots of production. U.S. oil output is expected to be 12.86 million barrels a day according to East Daley Capital, which is a 23% increase from their December forecast. Most of the increased production will come from shale Fields in the Permian Basin, as elevated prices can sustain drilling and production here. Additionally, supply chains are relatively more lubricated, the Russia-Ukraine conflict looks ongoing, and a massive Covid resurgence seems like a small probability. The Dallas said profits are more than sustainable to continue drilling in the Permian Basin and other shale sites.
Finsum: This increased production could be enough to finally cap the upward moving gas prices, but that effect could take some time.
Oil prices have begun to stagnate just a hair, but they are still high enough to spur lots of production. U.S. oil output is expected to be 12.86 million barrels a day according to East Daley Capital, which is a 23% increase from their December forecast. Most of the increased production will come from shale Fields in the Permian Basin, as elevated prices can sustain drilling and production here. Additionally, supply chains are relatively more lubricated, the Russia-Ukraine conflict looks ongoing, and a massive Covid resurgence seems like a small probability. The Dallas said profits are more than sustainable to continue drilling in the Permian Basin and other shale sites.
Finsum: This increased production could be enough to finally cap the upward moving gas prices, but that effect could take some time.
Oil demand isn’t diminishing anytime soon, and while Russian Oil companies may suffer from sanctions and political pressure other oil companies are in a position to benefit. Goldman upgraded three oil companies that could capitalize. The first is Diamondback Energy from Texas; they have strong production and great revenues/earnings. Next up was Ovintiv which moved from Canada to the US two years ago but also has strong revenues and a half dozen consecutive quarterly gains in earnings. Rounding out the bunch is Hess which is a hydrocarbon extraction company which will benefit from the elevated prices in its shale search.
Finsum: These options look promising, remember fringe producers really benefit the most on the margins from elevated prices.
ESG and other socially conscious investing is all fine and dandy when energy prices are modest, however the sharp spike in energy has many reorganizing their priorities. There was already an upward trajectory pre-Russian invasion due to OPEC+ supply constraints but that has escalated with Biden’s latest sanctions. The war is putting pressure on key commodities that are slowing many green energy initiatives and renewable policy proposals. More Americans than ever are worried about the prices at the pumps and calling for expansion in drilling to expand supply. So no matter the political pressure ESG is facing an uphill climb at the moment.
Finsum: This could put more pressure on long term green energy proposals as this crisis highlights dependence on fossil fuels.