Monday, May 19, 2025
  • Login
Euro Times
No Result
View All Result
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology
Euro Times
No Result
View All Result

FENY: The Macro Theme For Fidelity’s Energy ETF Has Changed (FENY)

by Index Investing News
December 19, 2022
in Stock Market
Reading Time: 7 mins read
A A
0
Home Stock Market
Share on FacebookShare on Twitter


joebelanger/iStock via Getty Images

Back in October of 2021, I advised investors to BUY shares of the Fidelity MSCI Energy Index ETF (NYSEARCA:FENY) as the U.S. and the world began to emerge from the drastic demand destruction as a result of the global pandemic (see FENY: A Reopening Thesis). Shares have returned 105% since that time – significantly outperforming the broad S&P500 (see graphic below). And while I still believe there are attractive investment opportunities in the energy sector, I also doubt that performance will be repeated over the next 12-months. Today, I’ll take another look at the FENY ETF and opine on how the global energy markets – as well as the global economic outlook – have changed significantly over the past year.

Investment Thesis

As the old saying goes: “May you live in interesting times.” No doubt – and times change. And they change rapidly in today’s world. The global energy market and global economy have also changed considerably since my “reopening thesis” article on the FENY ETF back in February of 2021. Today, the world (ex-China …) has – relatively speaking – come to grips with Covid-19 and global O&G demand growth has come roaring back from the drastic demand destruction seen in 2020, the “year of the pandemic”:

Global Oil Demand Growth

IEA

Yet as you can see from the trend-line (green dotted line), global oil demand growth is trending downward and is expected to keep trending downward in the years to come. Meantime, the price of the global oil benchmark (Brent) is expected to remain elevated next year – in the range of $80-$100/bbl:

Brent Oil Prices

EIA

That is certainly a high enough price for oil producers to earn big profits and continue the strong free-cash-flow generation they have enjoyed this year. However, that relatively high price for oil means high global gasoline and diesel prices – which will likely to only accelerate the EV transition and, by doing so, likely bend the global oil demand growth trend-line shown earlier to bend more sharply toward the “0” line. That is, I would expect global oil demand growth to peak prior to 2030, which also happens to be the year that EVs are expected to represent 50%+ (per Bloomberg) of all new vehicle sales on the planet. The IEA is even more bullish on EV sales and predicts EV will account for 60% of new vehicle sales by 2030.

Yet, in the short-term, O&G producers will continue to do quite well in the short-term – mostly due to Putin’s horrific war-of-choice on Ukraine that broke the global energy & food supply chains. However, that war has also resulted in massive global inflation and higher interest rates across the globe. Combine that with China’s re-opening struggles and President Xi’s refusal to embrace Western mRNA vaccines, and the global economy is struggling to regain its footing. Global economic growth is slowing.

China is now the planet’s #1 importer of oil. That being the case, China’s recovery from Covid-19 is a primary factor for oil demand growth (and the global economy …) going forward. Right now, the jury is out on just how successful China might be with its Covid-19 “reopening” plans.

Top-10 Holdings

As you can see from the list holdings shown below, which were taken directly from the Fidelity FENY ETF webpage, the top-10 holdings in the FENY equate to a relatively concentrated 67.4% of the entire 118 company portfolio:

FENY ETF Top-10 Holdings

Fidelity

In addition, ~38.5% of the fund is allocated to the top-2 holdings, which also happen to be the two biggest oil & gas companies in the U.S.: Exxon (XOM) and Chevron (CVX). Both have been massive beneficiaries of Putin’s invasion of Ukraine and the resulting increase in global oil & gas prices:

Chart

Exxon currently yields 3.5% and Chevron 3.4%. As I reported in my recent Seeking Alpha article Investing in the Age of Energy Abundance, Exxon continues to ramp up its prolific Guyana play, which during Q3 rose to 360,000 boe/d. The current plan is to grow Guyana production to 1 million boe/d by 2030. Using a recoverable reserves estimate of 11 billion boe, a 1 million boe/d production rate would last 30+ years.

Meantime, Chevron plans to grow Permian production to 1 million boe/d by 2025 before leveling off to between 1.2-1.5 million boe/d out to 2040:

Chevron's Permain Production

Chevron

The #3 holding with a 7.4% stake is ConocoPhillips (COP). Along with Occidental Petroleum (OXY), EOG Resources (EOG), and Pioneer Natural Resources (PXD), the fund’s top-10 holdings has 17% of the fund allocated to companies that get the majority of their production from domestic shale plays. As I have been reporting Seeking Alpha, these companies have been generating huge free-cash-flow this year with oil prices more than 2x their breakeven price of under $40/bbl WTI (see here, here, and here). As a result, they are rewarding shareholders with strong dividends and share buybacks. For instance, COP generated $4.7 billion of FCF in Q3 alone while total dividends declared and paid during FY22 total $4.49/share. At Friday’s close ($110.44), that equates to a yield of 4.1%. Indeed, in Q3 COP boosted its quarterly dividend by 11% and increased its existing share buyback program by $20 billion (to $45 billion).

The FENY ETF’s top-10 holdings also has 8.6% allocated to the refining sector through #5, #8, and #10 holdings Marathon Petroleum (MPC), Valero (VLO), and Phillips66 (PSX), respectively. Phillips66 has been killing it this year on strong diesel margins due to its higher than peer distillate yield.

Performance

The 1-year total returns performance of the FENY ETF is shown below as compared to some of its peers: the Vanguard Energy Fund Admiral Shares Fund (VGELX), the Energy Select Sector SPDR ETF (XLE), and the iShares U.S. Energy ETF (IYE):

Chart

With the glaring exception of the VGELX fund, all of these ETFs have returned 56%+ over the past year, soundly thumping the S&P 500 – which has returned -16%.

However, over the past decade the picture is much different:

Chart

The graphic above clearly shows the “lost decade” during which the idiotic “drill baby drill” strategy – where O&G companies sought to grow production into an already over-supplied market – destroyed $10s of billions of shareholder capital. Things are certainly different today. O&G producers are being very disciplined with spending – even during a time of war and as Americans are suffering from very high inflation and the resulting rapid rise in interest rates to fight that inflation.

Risks

The most obvious risk for O&G producers is lower prices for oil & gas. While demand pull from the EU will likely result in continued strong pricing for domestic natural gas producers, I am not as confident in the price of Brent. While the EIA estimate shown earlier (see graphic above) is quite bullish, it is not as certain as some might believe. That’s because much seems to be dependent on China’s reopening, and it seems to me the Chinese population – with very low exposure and natural immunity due to the previous “Zero Covid” policy – could be in for a massive increase in infections this winter. Meantime, Exxon keeps ramping up Guyana while significantly increasing its cap-ex budget this year, as did Chevron, much of which will go toward growing production in the Permian Basin.

Meantime, the U.S. Federal Reserve and other central banks are intent on reducing inflation. Higher interest rates have already dramatically and negatively impacted the housing market, and lay-off announcements are on the rise. That being the case, odds of a recession next year are rising. A recession would result in lower demand for oil and would put downward pressure on oil prices due to lower and slowing economic growth.

Bottom line: the downside risks for the energy sector have generally risen. Including on the dividends, FENY has a TTM yield of 3%. However, many of the shale companies now have base+variable dividend policies. If O&G prices and FCF were to drop next year, so too could FENY’s dividends as the variable dividends would likely be reduced.

Summary & Conclusion

In my opinion, the risks for the O&G sector have increased substantially as compared to the beginning of the year. While O&G companies have greatly benefited from Putin’s war-on-Ukraine and the subsequent breaking of the global energy supply-chain, the coming months will likely see much more of the negative consequences for these companies: continued high inflation, rising interest rates, and the negative impact of higher gasoline/diesel prices on global demand as consumer behavior continues to shift toward EVs.

I rate the FENY ETF a HOLD, but caution investors to pay close attention to Covid-19 outbreaks in China as they pertain to Chinese oil imports, as well as to U.S. economic data as the full-impact of high-inflation and rising interest rates continue to hammer the U.S. consumer.



Source link

Tags: changedEnergyETFFENYFidelitysmacrotheme
Previous Post

Messi May Not Be Soccer’s GOAT for Long

Next Post

Investors ramp up pressure on Big Oil firms to set 2030 climate targets By Reuters

Related Posts

An Trustworthy Take a look at Effectiveness for College students

An Trustworthy Take a look at Effectiveness for College students

by Index Investing News
May 19, 2025
0

As regards to preparing for the GRE, school college students proper now are on the lookout for prep applications that...

Vital Farms: A High-Growth Outlier In The Defensive Staples Sector (NASDAQ:VITL)

Vital Farms: A High-Growth Outlier In The Defensive Staples Sector (NASDAQ:VITL)

by Abdul-Rahman Bhery
May 18, 2025
0

This text was written byComply withI'm an enthusiastic fairness analysis and funding analyst with a robust curiosity in making use...

Alphabet Inventory: Purchase Extra The Greatest AI Play At A Cheap Valuation (NASDAQ:GOOG)

Alphabet Inventory: Purchase Extra The Greatest AI Play At A Cheap Valuation (NASDAQ:GOOG)

by Index Investing News
May 18, 2025
0

This textual content was written by Superior education in economics, enterprise administration and engineering. Expert experience with product administration and...

A Real Estate IPO Could Substantially Eclipse Leon’s Furniture EV (LEFUF)

A Real Estate IPO Could Substantially Eclipse Leon’s Furniture EV (LEFUF)

by Valkyrie Trading Society
May 17, 2025
0

This text was written byObserveThe Valkyrie Buying and selling Society is a group of analysts sharing excessive conviction and obscure...

INTF: Issue Weighting Seems Its Benefits For Worldwide Shares

INTF: Issue Weighting Seems Its Benefits For Worldwide Shares

by Index Investing News
May 17, 2025
0

This textual content was written by I’ve been involved inside the financial world for over 20 years with experience as...

Dollar General Stock: Back To Growth, Limited Margin Of Safety Though (NYSE:DG)

Dollar General Stock: Back To Growth, Limited Margin Of Safety Though (NYSE:DG)

by Alan Galecki
May 17, 2025
0

This text was written byObserveAll the time on the hunt for undervalued, promising shares with a deal with danger and...

Next Post
Investors ramp up pressure on Big Oil firms to set 2030 climate targets By Reuters

Investors ramp up pressure on Big Oil firms to set 2030 climate targets By Reuters

The Year in Pictures 2022

The Year in Pictures 2022

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

An Trustworthy Take a look at Effectiveness for College students

An Trustworthy Take a look at Effectiveness for College students

May 19, 2025
Dogecoin Price Tests Panic Zone At alt=

Dogecoin Price Tests Panic Zone At $0.21, Breakdown Could Lead To Price Crash

May 18, 2025
Pro-EU centrist wins Romanian presidential race over hard-right nationalist

Pro-EU centrist wins Romanian presidential race over hard-right nationalist

May 19, 2025
If you like puzzles, check out this trippy comic-style escape room game for Playdate

If you like puzzles, check out this trippy comic-style escape room game for Playdate

May 18, 2025
Argentine Judge Orders Financial Disclosure of President Milei in LIBRA Fraud Case

Argentine Judge Orders Financial Disclosure of President Milei in LIBRA Fraud Case

May 18, 2025
Trump Envoy Calls Qatar’s Jumbo Jet Gift a ‘Perfectly Legal Transaction’

Trump Envoy Calls Qatar’s Jumbo Jet Gift a ‘Perfectly Legal Transaction’

May 18, 2025
Euro Times

Get the latest news and follow the coverage of Business & Financial News, Stock Market Updates, Analysis, and more from the trusted sources.

CATEGORIES

  • Business
  • Cryptocurrency
  • Finance
  • Health
  • Investing
  • Markets
  • Politics
  • Stock Market
  • Technology
  • Uncategorized
  • World

LATEST UPDATES

An Trustworthy Take a look at Effectiveness for College students

Dogecoin Price Tests Panic Zone At $0.21, Breakdown Could Lead To Price Crash

  • Disclaimer
  • Privacy Policy
  • DMCA
  • Cookie Privacy Policy
  • Terms and Conditions
  • Contact us

Copyright © 2022 - Euro Times.
Euro Times is not responsible for the content of external sites.

No Result
View All Result
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology

Copyright © 2022 - Euro Times.
Euro Times is not responsible for the content of external sites.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In