Oil and gas

Normally, aggregate ranks of quality line up nicely with aggregate ranks of value (a negative correlation coefficient) e.g. healthcare.


With energy, they are all over the show. The market is not pricing the sector on traditional fundamentals, which is what makes up the bulk of our factor model (e.g. measures of profit, leverage, growth).


You could say it’s all ESG, and that has certainly become part of the fundamentals trope. But it doesn’t quite explain the dynamic with coal (where coal stocks are doing very well) and with international oil and gas names (which have done much better than Australian names).

Flows, localised indices, are all good proximate guesses as to the underlying root cause, which ultimately manifests as an increased risk aversion to holding these “sin” stocks.

Still, the sector looks like very good value, to our minds, and definitely worth more than a mere ~2.5% (benchmark weighting) on a risk reward basis.

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Please note that past performance is not a reliable indicator of future performance.

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