Energy stocks have taken some lumps among environmentally conscious asset allocators, but that doesn’t mean investors should ignore ETFs such as the VanEck Vectors Natural Resources ETF (NYSEArca: HAP).
HAP is a based on an index of global commodity equities. The underlying VanEck Natural Resources Index tracks companies involved in the production and distribution of commodities and commodity-related products and services involved in agriculture, alternatives (water & alternative energy), base and industrial metals, energy, forest products, and precious metals.
While HAP isn’t a dedicated energy ETF (the sector is 30.4% of the fund’s weight), strong oil demand can be helpful for the fund and demand for crude remains solid.
“According to the International Energy Agency (IEA), oil demand in 2019 is estimated to have averaged an all-time record high of 101.3 million barrels per day (mbd)—1 mbd greater than 2018,” said VanEck in a recent note. “Perhaps even more impressive is the growth of global consumption in the fourth quarter of 2019 alone, estimated to be 1.9 mbd greater than in the fourth quarter of 2018.”
Help From HAP
HAP offers some value because materials and energy sectors, which combine for almost two-thirds of the fund’s weight, are two of the most deeply discounted groups relative to the broader market. Another potential boon for HAP is the improving balance sheets found among exploration and production companies.
“Nevertheless, it is our view that investments require an ultimate return and we see many E&P industry participants as well-positioned to deliver these returns,” according to VanEck. “Solid growth and points to the profitability gains made over the last several years through remarkable technology innovations and relentless efficiency and optimization improvements.”
Overall, HAP may be worth a look because right now, many investors are focusing on the negative when it comes to energy and not focusing on the sector’s positive traits.
“Despite a year when returns from traditional energy equities failed to match those of broader markets, there are several substantive, but perhaps poorly appreciated, features worth highlighting that may substantiate a more positive view of the industry,” said VanEck. Despite the regular refrain of impending global economic weakness, crude oil demand continues to grow steadily and hit record levels. Consumption growth is expected to strengthen in 2020.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
