One nice thing about the BlackRock Energy and Resources Trust is that it is quite well diversified internationally. We may be able to guess this by looking at the largest positions list as there are a number of non-American companies on the list. In fact, only This is nice because of the protection that it provides us against regime risk.
Regime risk is the risk that some government or other authority will take an action that proves to have an adverse impact on a company in which we are invested. We saw a great example of this back in when the incoming Biden Administration unilaterally canceled the permits for the construction of the KeystoneXL pipeline and effected caused all the money that TC Energy TRP had spent on it to that point to be wasted.
The only realistic way to protect ourselves against this risk is to ensure that only a relatively small portion of our assets is exposed to the whims of any given government. This is largely because the financial performance of the companies that it invests in is highly correlated with energy prices. Fortunately, the fundamentals for both crude oil and natural gas are quite positive and point for higher prices going forward.
The fact that these resources have strong fundamentals might be surprising to many investors because the media and politicians have been telling us that traditional fossil fuels will soon be obsolete. However, nothing could be further from the truth.
As everyone reading this is no doubt well aware, these concerns have induced governments all around the world to impose a variety of incentives of mandates that are intended to reduce the carbon emissions of their respective nations. One of the most common of these mandates is to encourage utilities to retire old coal-burning power plants because coal is by far the most heavily polluting of any fuel currently in use.
This generation capacity is largely being replaced by renewable sources of energy but renewable technologies have one major flaw. That flaw is that they are unreliable. After all, wind power does not work when the air is still and solar power is much less effective when the sun is not shining.
In order to overcome this deficiency, a common strategy is to supplement renewables with natural gas turbines. This is because natural gas is reliable and burns much cleaner than any other fossil fuel. Thus, it provides a means to keep the grid operational when renewables are unable to perform this task. The case for forward crude oil demand growth may be somewhat harder to understand. After all, many nations around the world including the United States are actively attempting to discourage the use of crude oil within their borders.
However, it is a very different story when we look at the various emerging markets around the world. These nations are expected to see tremendous economic growth over the projection period. This economic growth will have the effect of lifting many people out of poverty and putting them securely into the middle class.
These newly middle-class people will naturally begin to desire a lifestyle that is much closer to their counterparts in the developed nations than what they have now. This will require the consumption of growing amounts of energy, including energy derived from crude oil.
As the populations of these nations are much larger than the populations of the developed nations, the growing demand for crude oil here will more than offset the stagnant-to-declining demand in the developed nations. However, it is highly unlikely that energy producers will increase production sufficiently to satisfy this demand growth.
The energy industry has been chronically underinvesting in production and midstream capacity since the energy bear market, which is one reason why the offshore drilling industry never recovered from that event. There is, to put it mildly, no chance that the industry will actually do this. After all, it is under tremendous pressure from politicians and environmental activists to improve the sustainability of its operations.
In addition, the energy industry has generally underperformed most others over the past decade and investors have begun to demand much higher returns. Thus, we will likely have a situation in which the demand for oil and gas will grow more rapidly than the supply. The laws of economics tell us that this leads to higher prices. As the stock prices of the companies that the BlackRock Energy and Resources Trust invests in are positively correlated with energy prices, this should prove to be a good situation for the owners of the fund.
Distribution Analysis As stated earlier, one of the objectives of the BlackRock Energy and Resources Trust is to provide its investors with a high level of current income. In addition, a few of the companies that the fund invests in traditionally pay very high dividend yields. As such, we might expect that the fund will boast a fairly high yield.
As many bills tend to increase with energy prices, it can provide a hedge against that, though. The thing that we are going to look at here is how well it can maintain its distribution going forward. Fortunately, we do have a very recent report that we can consult for this purpose. This is a much more recent report than we had the last time that we looked at the fund and it should give us a good idea of how well the fund performed during the very strong commodities market in the first half of this year.
However, the fund has some other methods that it can use to obtain the money that it needs to pay its distributions. The most important of these is capital gains and the BlackRock Energy and Resources Trust had a considerable amount of success in this area during the six-month period. This was more than enough to cover the distribution when combined with the net investment income. This gives us a great deal of confidence that it should have no problem maintaining the distribution and likely explains why the fund has been boosting its distribution over the past few months.
Valuation It is always critical that we do not overpay for any asset in our portfolios. This is because overpaying for any asset is a surefire way to generate a suboptimal return on that asset. In the case of a closed-end fund like the BlackRock Energy and Resources Trust, the usual way to value it is by looking at a metric known as the net asset value.
It is therefore the amount that the shareholders would receive if the fund were immediately shut down and liquidated. Ideally, we want to buy shares of a fund when we can acquire them at a price that is less than the net asset value. That is fortunately the case with this fund. This gives it a This is also quite a bit better than the Recapping a Miserable Decade For Energy Investors Even though BGR has outpaced the broader market in recent months, the 10 year chart shows how difficult things have been for energy investors: Source: Thomson Reuters Eikon Capital markets have been driving the supply side of the oil market.
In the early s, capital was abundant for US oil producers, so they drilled excessively. Yet the shale boom turned to bust, and US oil production dropped off. The Covid crisis caused an even sharper drop in oil production. A long term chart of rigs in operation illustrates the magnitude of this supply drop. Source: Horizon Kinetics. Since , energy companies have had trouble accessing new capital.
As a result they drastically cut capital expenditures. Smaller companies are unable to raise capital to fund new exploration. As of early , oil majors have cut their capex in half compared to , according to Louis-Vincent Gave. Based on a framework developed by Variant Perception, the oil industry is near an all time low for capital availability.
Less capital availability means less competition for surviving companies, and better returns on capital for investors during the next up cycle. Source: Variant Perception What about the demand side of the market? Although renewable energy will likely one day replace fossil fuels, that is still a long ways off.
Global population growth, especially in the developing world will continue to put demand pressure on the energy sector. As the world recovers from Covid, it's likely that a sudden surge in demand will meet diminished supplies. It will take several years to expand supply again to meet this new demand. It holds a portfolio of around energy stocks with a large portion concentrated in the largest diversified oil and gas companies.
The largest individual holdings are a These are the companies that have the balance sheet strength to survive through a long energy downturn, and thrive in the next bull market. The portfolio is mostly concentrated in the US, but also includes companies listed abroad.
This strategy reduces upside slightly, but also provides steady income. At current prices BGR yields 5. Yet the strategy is starting to show potential now that commodities are attracting investor interest again. This performance has primarily been driven by an increase in NAV. For comparison purposes its 1 year, 3 year and 5 year discounts are However, I believe that in a true oil crisis scenario it would trade close to NAV, and potentially even at a premium due to buying pressure from income investors scrambling to get oil exposure in a crisis.
It did spike to a premium briefly in late and early
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Follow Summary The traditional energy sector has been one of the few to deliver positive performance in
| Crypto device definition | However, nothing could be further from the truth. As stated in the introduction, the stock market has read article performed poorly over the past year. Yet the strategy is starting to show potential now that commodities are attracting investor interest again. You can explore the different areas of the forum in a special thread! With that said, a high turnover does not necessarily mean that a fund will underperform but it does create an extra hurdle that management must jump over in order to deliver the returns that investors expect. I have no business relationship with any company whose stock is mentioned in this article. Less forex forum bgr availability means less competition for surviving companies, and better returns on capital for investors during the next up cycle. |
| Are cryptos safe | We are currently offering a two-week free trial for the service, so check us out! Forex is a dynamically developing financial market which is open 24 hours a day. This is one of the more popular funds in the sector due both to the BlackRock name and its 5. The market is just beginning to wake up to the supply demand imbalance that built up over the past decade. You sound hella young, If you just graduated university your what so around my age. |
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| Forex forum bgr | The fund should benefit from the solid fundamentals for energy prices, which should help bgr price appreciation. This is because overpaying for any asset is a surefire way to generate a suboptimal return on that asset. This will require the consumption of growing amounts of energy, including energy derived from crude oil. It did spike to a premium briefly in late and early One of these, ExxonMobil, accounts forex forum more than three times that limit. This is nice because of the protection that it provides us against regime risk. This generation capacity is largely being replaced by renewable sources of energy but renewable technologies have one major flaw. |
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| Forex forum bgr | We are currently offering a two-week free trial for the service, so check us out! Idiosyncratic, or company-specific, risk is that risk that any asset possesses that is independent of the market as a whole. Pakistan Forex Forum Trading discussions Every forum user can join a discussion of various issues, including those related to Forex but not limited to. Thus, we will likely have a situation in which the demand for oil and gas will grow more rapidly than the supply. The market narrative around commodities in general, and energy in particular is starting to change dramatically. |
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