Revised to include supplemental information, this quarter’s review is about the energy sector. Investors fear a permanent failure to recover (if not an impending collapse) due to the fossil fuel divestment movement and alternative energy growth. Stock prices already reflect that outcome.  Yet, the most comprehensive multi-factor analyses of long-term global energy consumption do not result in that outcome, despite projected rapid multi-decade expansion of alternative energy. That’s a wide and consequential divide. Within that divide there are enormous information advantage possibilities, and we believe it presents one of the most extraordinary of investment opportunities. Neither set of expectations takes account of the historic – and worsening – structural oil & gas supply deficits. The greater near-term danger is a long-lasting oil price shock. The sheer volume of information available from innumerable sources on this complex set of topics can be overwhelming to those seeking to make information-based decisions. This review addresses misconceptions about both conventional and renewable energy.  Finally, we discuss two positions that have been mentioned time and again; one provides exposure to the energy sector with a royalty model that limits risk; the other provides (among other potential benefits) a hedge against inflation, which we view as the highest risk to investors. 

Download: 3rd Quarter 2020 Commentary