Topnotch Managers Disagree on Energy's Future
These proven managers stand at the extremes of the energy debate.
Even considering the recent summer sell-off, energy stocks have been on a tear in recent years, driven by increasing global demand for energy and soaring oil prices. Mutual funds' exposure to the sector (or lack thereof) has played a key role in determining both relative and absolute performance. But as oil prices have edged lower during recent months and energy stocks have suffered, investors are left to determine whether this is the end of the sector's run or merely a short-term stumble.
No matter which side of this debate you fall upon, you're in good company. Some of the most experienced and acclaimed fund managers disagree about energy's outlook. Let's look at three energy bulls and three energy bears, and their views on the sector. Whomever you agree with, you have good options in which to invest.
Chuck Bath of Diamond Hill Large Cap (DHLAX)
Diamond Hill Large Cap manager Chuck Bath is an experienced contrarian known for concentrating assets in sectors where he sees the most opportunity. Bath has favored energy stocks since 2004, and the sector's run since then hasn't altered his positioning. The fund's energy stake jumped from nearly 13% in May 2004 to about 22% in December 2004 and still stands near there today. It's the fund's largest sector allocation and above average for a large-value fund. At first, Bath felt low real interest rates, rising commodity prices, and a falling dollar would benefit commodity-related stocks. But because such macroeconomic trends can be fickle, he targets companies with attractive assets in politically stable environments that don't need record high oil prices to grow. That led Bath to Southwestern Energy Company (SWN) in 2004 and the stock has had some extremely strong years since then. Today, Bath holds five energy stocks (his largest position is Devon Energy Corporation (DVN)), all of which look attractive and inexpensive to him based on an assumed oil price that's less than half of the current level.
Hilary Fazzone does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.