Defensive stocks, such as health care and utilities, have led the market for most of 2014. But we’re starting to see a shift toward cyclical sectors that offer greater exposure to a strengthening economy. In my view, the most overlooked cyclical sector is energy, which has experienced a very strong start this year that’s been under the radar of many investors.
From early February to the end of April, the S&P Energy sector rose more than 15%, or almost double the gain of the S&P 500 Index (approximately 8%) over the same time period.1
Overall, I think most people understand the production side of the energy equation, especially with all of the attention that has been given to natural gas shale plays across the US. But I believe many strategists underestimate demand, especially in the emerging world, and are expecting a downside to global crude oil demand that I’m not sure will come to fruition.
There are several names I like in both the exploration and production (E&P) space and the service and supply space. As we await earnings announcements from several key energy companies over the coming days, I’ll highlight two names here: Anadarko Petroleum and Weatherford International.
Earlier this month, Anadarko (0.76% of Invesco Charter Fund as of March 31, 2014) agreed to a $5.15 billion settlement with the United States government over environmental legislation against Kerr-McGee, a company that Anadarko bought in 2006. The suit has weighed on Anadarko for some time — I believe it’s trading at 30% to 40% below its fair value. The resolution of this issue — along with its wonderful properties and other positives—make Anadarko an attractive holding, in my view.
Weatherford International (1.36% of Invesco Charter Fund as of March 31, 2014) is an oilfield service provider that I believe has great margin opportunities. It’s currently focused on divesting underperforming businesses while retaining higher-margin opportunities, particularly in the international space, within its core business.
1 Source: MSN Money, money.msn.com
Holdings are subject to change and are not buy/sell recommendations.
The S&P 500® Index is a market-capitalization weighted index considered representative of the US stock market.
About risk
Holding cash or cash equivalents may negatively affect performance.
Debt securities are affected by changing interest rates and changes in their effective maturities and credit quality.
Derivatives may be more volatile and less liquid than traditional investments and are subject to market, interest rate, credit, leverage, counterparty and management risks. An investment in a derivative could lose more than the cash amount invested.
Businesses in the energy sector may be adversely affected by foreign, federal or state regulations governing energy production, distribution and sale as well as supply-and-demand for energy resources. Short-term fluctuations in energy prices may cause price fluctuations in an energy fund’s shares.
The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
The investment techniques and risk analysis used by portfolio managers may not produce desired results.
Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.
Before investing, investors should carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the fund(s), investors should ask their advisors for a prospectus/summary prospectus or visit invesco.com/fundprospectus.
All data provided by Invesco unless otherwise noted.
Invesco Distributors, Inc. is a US distributor for retail mutual funds, exchange-traded funds, institutional money market funds and unit investment trusts.
Invesco unit investment trusts are distributed by the sponsor, Invesco Capital Markets, Inc. and broker dealers including Invesco Distributors, Inc. These Invesco entities are indirect, wholly owned subsidiaries of Invesco Ltd.
©2014 Invesco Ltd. All rights reserved.
