Did I expect oil to trade down $40 a barrel? I did not. Do I think oil prices stay down for an extended period of time? No I am not in that camp. In fact I am a raging bull on oil markets. Demand is growing (which is likely to speed up with lower prices) and the world’s production of conventional oil is stagnant to declining. That leaves unconventional production to fill in the gap. This production will need to come from oilsands, deep water projects and even these tight basins and all of this needs higher prices to cover the cost of production.
Buying low and selling high is a main tenant in investing. We see that selective energy names need to be bought as we expect investors with a multi-year year horizon will do very well as we believe oil is ultimately set to increase. For us, this does not include US shale names.
1 This statistic for the J.P. Morgan High Yield Index, constrained. Acciavatti, Peter, Tony Linares, Nelson R. Jantzen, CFA, Rahul Sharma, and Chuanxin Li. “Credit Strategy Weekly Update,” J.P. Morgan North American High Yield and Leveraged Loan Research, November 21, 2014, p. 6.
2 Determination based on Peritus’ research.
This article was written by Tim Gramatovich, CFA, CIO for Peritus Asset Management, the sub-advisory firm of the AdvisorShares Peritus High Yield ETF (HYLD).