Displaying items by tag: equities

In an article previewing the first quarter earnings season for the energy sector for Zacks Investment Research, Sheraz Mian discussed the major factors for why analysts are forecasting 2023 earnings to decline by about 21% compared to 2022. 

The major factor is that prices are down by about 25% when compared to last year. Additionally, costs are going up faster than expected, leading to downwards pressure on margins. Given these uncertainties, companies continue to be conservative in terms of CAPEX and optimizing balance sheet health.  

In terms of the outlook for crude oil prices in 2023, the major headwind is weaker demand as economic growth decelerates across the world. Many expect the US economy to stumble into a recession later this year as the Fed keeps rates high to tamp down on inflationary pressures. Additionally, Chinese growth has also been less robust than expected following the end of its Covid policies. 

This is sufficient enough of a headwind to offset bullish impulses from OPEC cutting production, sanctions on Russian oil production, and the US government restocking its depleted crude oil inventories. 

Finsum: Earnings for the energy sector are expected to be down 21% compared to last year as recession concerns dominate. 

In an article for the Financial Times, Derek Brower discussed recent weakness in energy stocks due to increasing worries of a recession despite a recent string of strong earnings reports. This follows a two year rally which was fueled by production cuts in 2020, a better than expected economy, and the war in Ukraine. 

Last year, the energy sector was up more than 50%, while the S&P 500 finished down double-digits. This year in contrast, the S&P 500 has an 8% gain, while the energy sector is down 5%.

According to Wall Street analysts, investors are looking past companies’ strong results due to expectations that recent trouble in the banking sector will translate into reduced economic activity and demand for crude oil. 

Another indication is that dividend yields in energy stocks are nearly double those found in financial stocks and quadruple those of tech stocks. Inflation is proving to be a significant headwind as production costs have increased, eroding margins with lower oil prices. Another is that productivity in the Permian Basin has declined by 30% over the last 2 years, another reason that margin contraction is likely.

Finsum: Following major outperformance in 2022, energy stocks have underperformed so far this year due to increasing recession fears.

Jonathan Brasse discussed a recent white paper from Swiss alternatives group, Partners Group, about why private markets are poised to grow faster than public ones over the next decade in an article for PEREnews.

In essence, Partners Group notes the changing landscape for private markets, and how they are playing a larger role in financing the ‘real economy’. Since 2016, funding on private markets has exceeded that of public markets. Last year, about $400 billion was raised on public markets, while more than $1 trillion was raised in private markets.

Another change is that companies raising on private markets are generally healthier and more profitable than ones listing on public exchanges. These trends are also evident in the real estate market.

Fundraising for real estate in private markets has been steadily growing, while the number of real estate IPOs has dwindled. In terms of future returns, real estate listed on private markets has a better chance to be renewed, repurposed, and transformed, while such expenditures are less common on the public side given the pressures of quarterly earnings and shorter time horizons of public investors. 

Finsum: Private markets have been overtaking public markets in terms of funding. This trend is also happening in real estate markets.

Wavertown, a discretionary fund management firm in the UK, is currently pulling in net inflows of £100mn per month from financial advisors, with 85% going into model portfolios. Waverton attributes the growth in demand for its models due to the structural shift in the advice market towards outsourcing portfolio management. In 2020, the firm also noted an uptick in demand for real assets exposure and absolute return strategies from advisors and clients. Currently, more than 30 percent of assets in the model portfolios are allocated to those asset classes. The firm, which has assets under management of £8.6bn, works with 500 advice firms in the UK and offers a range of model portfolios. The firm is noteworthy for the fact that, unlike many other providers, Waverton does not allocate to external funds. Instead, it invests directly in equities, bonds, real assets, and absolute return funds. The firm started as JO Hambro Investment Management and was owned by Credit Suisse from 2001 to 2013. A private equity-backed buyout took place and the firm then renamed itself Waverton in 2014.

Finsum:A structural shift in portfolio management outsourcing has increased the demand for model portfolios driving inflows for a UK-based Wavertown.

According to a Bloomberg News survey of terminal and Bloomberg.com readers, sixty-five percent of the respondents expect ESG funds to trail the broader market in 2023. Out of the 691 survey respondents, 264 expect ESG funds to “slightly underperform,” while 184 are predicting they’ll “significantly underperform.” Of those 691 respondents, 235 identified themselves as being directly involved in ESG investing, and of this group, a little more than half said they expect the funds to “slightly” or “significantly” underperform. Fionna Ross of Edinburgh-based fund manager Abrdn Plc told Bloomberg, “Given the challenges of 2022, there will be some recovery next year, but it will remain mixed” because of inflation and other overhanging economic hurdles." While data shows that the average equity fund adhering to ESG factors lost slightly less money this year than products that track traditional broader market indexes such as the S&P 500, ESG funds have outperformed over a longer period. According to researchers at Morningstar, about 56% of U.S. sustainable funds beat rival category groups in the three-year period that ended on Sept. 30th.

Finsum:Based on the results of a recent Bloomberg survey, 65% of respondents believe that ESG funds will underperform the broader market in 2023.