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Q&A With Matt Fruhen, Manager, Fidelity Large-Cap Stock Fund: Still Value In Energy: Video
I'm gonna approach this value play a little differently.
Fossil fuels, as a raw material (input cost), is necessary for many outputs. From the production of fertilizers to the making of plastics and paints...think Chemical products, instead of merely fuel for driving turbines and engines.
Take a look at FSCHX as a "Chemical Energy" play. Also, when fuel costs for transportation is in the lower price range, Airlines, Truckers, Rail and Port Shippers reduce operating expenses due to lower energy costs which improves their bottom line as companies. Take a look at FSRFX.
In a world of low interest rates (usually this means low inflation), and low energy costs help stimulate overall economic, which bodes well for the entire stock market. Energy is 6.5% of the S&P 500 (VOO), 25% of Gas Index (GASFX), and FLCSX (mentioned by @Ted) is 12% Energy. A pure energy play would be VGENX (VDE).
As an investor in the Energy sector, I have noticed that the sector has been more sensitive to the impact of inflation and deflation when the overall economy ebbs and flows . At some point when the economy heats up too much high energy demand will combine with supply constraints causing higher energy costs. These higher costs in the short run pass through to investors. In the long run, they slow economic growth and put a drag on the stock market.
I like to think of an investment in Energy as an inflation hedge for an investor in the early stages of higher inflation.
Comments
Fossil fuels, as a raw material (input cost), is necessary for many outputs. From the production of fertilizers to the making of plastics and paints...think Chemical products, instead of merely fuel for driving turbines and engines.
Take a look at FSCHX as a "Chemical Energy" play. Also, when fuel costs for transportation is in the lower price range, Airlines, Truckers, Rail and Port Shippers reduce operating expenses due to lower energy costs which improves their bottom line as companies. Take a look at FSRFX.
In a world of low interest rates (usually this means low inflation), and low energy costs help stimulate overall economic, which bodes well for the entire stock market. Energy is 6.5% of the S&P 500 (VOO), 25% of Gas Index (GASFX), and FLCSX (mentioned by @Ted) is 12% Energy. A pure energy play would be VGENX (VDE).
As an investor in the Energy sector, I have noticed that the sector has been more sensitive to the impact of inflation and deflation when the overall economy ebbs and flows . At some point when the economy heats up too much high energy demand will combine with supply constraints causing higher energy costs. These higher costs in the short run pass through to investors. In the long run, they slow economic growth and put a drag on the stock market.
I like to think of an investment in Energy as an inflation hedge for an investor in the early stages of higher inflation.