Investors shunning energy could wind up feeling the pinch of higher oil prices.
“Not owning energy wasn’t painful” when the sector was less than 2% of the S&P 500 index
said Savita Subramanian, an equity and quantitative strategist at BofA Global Research, in a note Thursday. But surging oil prices in the economic reopening could change that.
“Another big move in oil may be felt more acutely,” Subramanian said, estimating that an “astronomic 92% price return since October has bumped energy’s weight to 3%” of the S&P 500.
“If energy doubled again, and all other sectors saw average returns, investors with no energy exposure would sacrifice a full” 3 percentage points of market-beating returns, she estimated, adding that it would more than obliterate relative gains for active managers this year.
Meanwhile, portfolio managers who make long-only bets have twice as much exposure to tech giant Facebook Inc.
than the entire energy sector, the report shows. Energy represents about a “paltry” 2% of the average long-only portfolio manager’s weight, half as much as the 4.2% exposure to Facebook.
moved higher Thursday, with U.S. and global benchmarks trading above $70 a barrel. That’s a massive rebound from U.S. oil plummeting below $20 in the first half of 2020 when the COVID-19 crisis was wreaking havoc.
Shares of U.S. oil-and-gas companies have jumped, with the S&P 500 Energy index
soaring around 45% this year in the economic rebound from pandemic-related shutdowns, according to FactSet data. The index had plunged about 37% last year.
BlackRock’s iShares Global Energy ETF
an exchange-traded fund that tracks an index of global energy companies, was up 0.2% in afternoon trading Thursday. The move higher put returns for the year at about 34%.
The U.S. stock market has been trading near record highs, but gains are still far behind energy.
The S&P 500 and Dow Jones Industrial Average
benchmarks are each up almost 13% this year based on Thursday afternoon trading, while the tech-laden Nasdaq Composite
has climbed almost 9% in 2021.