Betting on the Energy Boom With Mutual Funds
NEW YORK ( TheStreet ) -- News reports have hailed a shale energy boom. Industry analysts predict that the U.S. can achieve energy independence in the next decade. But so far, the optimism has not translated into outsized gains for investors.
During the past five years, energy funds lost 7.0% annually, compared to a gain of 6.9% for the S&P 500, according to Morningstar. Weakening oil prices and sluggish global demand have held back the stocks.
Now some fund managers argue that the shares have become undervalued. William Riley, co-manager of Guinness Atkinson Global Energy
A basket of major oil and gas companies that Riley tracks has a price-to-earnings ratio of 10.9, vs. 16.0 for the S&P 500. The discount is wide because many investors expect oil prices to sink. "We think the size of the discount is unwarranted," Riley says. "In the emerging markets, demand for energy is pretty robust."
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William Riley of Guinness Atkinson Global Energy favors natural gas producers. He says that the outlook for gas prices is improving. In recent years, prices sank as shale production increased and excess supplies plagued the markets.
During the past year, companies have started reacting to market forces, reducing the number of rigs that are producing gas. At the same time that supplies have been falling, demand has grown as some big users switched from high-cost coal to cheaper gas. Gas futures recently reached $3.56 per million British thermal units, up 31% from a year ago.
Riley likes Ultra Petroleum
Riley also likes BP