ENERGY CONSENSUS: Investors Jumping On Energy Stocks

April 1, 2014

Investors are pouring money into energy companies , putting seven times as much into exchange-traded funds as they did last quarter.

“The size of the flow is unequivocal,” said Bruno del Ama, chief executive officer of Global X Management Co. in New York, which manages $3.4 billion. “Energy is becoming a favorite of ETF investors.”

Money flowing through ETFs is one indicator of investor sentiment that’s gaining influence compared with traditional measures such as share performance or commodities prices. Bullish trends can appear earlier in the $307 billion market of “sector” funds, which range from health care to real estate.

ETFs focusing on oil and gas companies have captured 20 percent of the $10 billion in net inflows into those ETFs this year, according to data compiled by Bloomberg. They hauled in only 2.5 percent of fresh money last quarter, and 7.7 percent in all of 2013.

The logic here is that if the economy is improving the demand for energy should increase to fuel such things as cars, aircraft, trucks and factories. Oil has remained stubbornly in the $95-100 barrel range. Natural gas which has been dormant the last 5 years has seen a resurgence thanks to a longer and more harsher than usual winter season. Investors appear to be taking a position that future growth is on the horizon. The wildcard in all this though is that supply appears to be in place thanks to the extra energy being produced in the US. This “new” supply can more than makeup for historical lack of supply that has been dictated by unstable countries. Usually when the Consensus and pounds the table for or against energy, the opposite tends to happen.