Displaying items by tag: oil

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.

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.

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.

A Texas statute that targets environmental, social, or governance funds, includes a notable number of funds that don’t have an ESG focus. Out of 348 funds singled out by Texas Comptroller Glenn Hegar, 14% don’t qualify as ESG, according to Morningstar. In addition, almost 40% of the funds invest in the oil and gas industry based on data compiled by Bloomberg. The findings highlight just how much ESG investing has become a hot-button political issue. In fact, many of the leaders of investment firms that have been attacked for pushing ESG policies, have themselves been attacked for their continued investment in the oil and gas industry. In regards to the findings, Hortense Bioy, Global Director of Sustainability Research at Morningstar stated, “The fact that many funds on the banned fund list hold companies involved in the oil and gas industry raises questions about the research done by the Texas comptroller on these investments. Clearly, these funds aren’t boycotting energy companies.”

Finsum: A significant number of funds singled out by Texas Comptroller Glenn Hegar due to their ESG activities, don’t qualify as ESG.