Energy sector stocks have soared 53% this year and have room to run as investors seek out ESG asset and inflation protection, says Bank of America
BofA
- Bank of America said clients loaded up on energy stocks last week, buying the most since 2008.
- The S&P 500 Energy sector has climbed 53% this year and BofA sees more upside ahead.
- BofA said clients have been stock picking in energy instead of passively investing.
Energy is the best performing sector on the S&P 500 this year as US oil prices have soared by roughly 70%, and the group still holds the potential for further upside, according to Bank of America.
BofA clients last week broke a six-week selling streak, purchasing $1.2 billion of US equities, with the period marking the largest inflow into energy stocks since the investment bank started keeping such records in 2008.
Last week's buying spree in shares of oil and gas companies was broad-based, with institutional and retail clients, hedge funds, and corporates taking part, the investment bank said in a note published Tuesday. The analysts said that investors have been consistently buying energy stocks since July. The bank didn't specify individual stock names.
"We see more room to run and note Energy fits several key themes (inflation-protected yield, ESG improver)," said Jill Carey Hall, head of US small- and mid-cap strategy at BofA, in the research note.
ESG refers to Environmental, Social, and Governance, with investors increasingly seeing sustainability goals and efforts as material to how a company performs. In a separate BofA note in October, the investment bank discussed 15 energy stocks it said had strong green credentials as oil prices soared.
Meanwhile, many investors have been seeking ways to shield their portfolios with prices for goods and services running at multi-year highs. Consumer price inflation charged up to 6.2% in October, the fastest growth rate since 1990.
The S&P 500 energy sector has climbed by roughly 53% during 2021, the best performance over 10 other groups tracked on the index. The sector sprang into recovery mode after plunging in 2020 as oil prices collapsed in the face of weak demand stemming from the COVID-19 pandemic.
The energy sector can serve as a place to seek refuge in a rising inflation environment as equities, in general, tend to perform poorly in such conditions, according to asset management company Schroders in a March 2021 report about US asset prices.
"Such firms beat inflation 71% of the time and delivered an annual real return of 9.0% per year on average," said Schroders strategist Sean Markowicz in the report. "This is a fairly intuitive result. The revenues of energy stocks are naturally tied to energy prices, a key component of inflation indices. So by definition they will perform well when inflation rises."
BofA in Tuesday's note said its clients are picking energy stocks over investing passively in the sector, and that energy ETFs have seen outflows for five of the last six weeks.
Among the biggest energy exchange-traded funds, the Energy Select Sector SPDR Fund, with $27 billion in total assets according to ETF Database, has risen 53% this year, and the $6 billion Vanguard Energy ETF has gained 59%.
from Business Insider https://ift.tt/3nnhQim
No comments