Energy stocks have jumped 53% this year and have room for maneuver as investors seek ESG assets and inflation protection, Bank of America says

  • Bank of America said customers sourced energy stocks last week, buying the most since 2008.
  • The energy sector of the S&P 500 has climbed 53% this year and BofA expects more upside to come.
  • BofA said clients were selecting energy stocks instead of passively investing.

Energy is the best performing sector in the S&P 500 this year, as U.S. oil prices have climbed about 70%, and the group still has further upside potential, according to Bank of America.

BofA clients broke a six-week sell-off streak last week, buying $ 1.2 billion in U.S. stocks, the period marking the largest inflow in energy stocks since the investment bank began to set such records in 2008.

Last week’s buying spree in oil and gas company shares was widespread, with the participation of institutional and retail clients, hedge funds and corporations, the investment bank said in a note released Tuesday. Analysts said investors have been buying energy stocks regularly since July. The bank did not specify the names of individual shares.

“We see more room for maneuver and note that energy fits into several key themes (inflation protected yield, ESG improvement),” said Jill Carey Hall, Head of US Small and Mid Cap Strategy at BofA , in the research note.

ESG refers to the environment, social and governance, with investors increasingly seeing sustainability goals and efforts as important to a company’s performance. In a separate note from BofA in October, the investment bank discussed 15 energy stocks that it said had strong green credentials as oil prices soared.

Meanwhile, many investors have been looking for ways to protect their portfolios with prices for goods and services hitting multi-year highs. Consumer price inflation hit 6.2% in October, the fastest growth rate since 1990.

The energy sector of the S&P 500 climbed about 53% in 2021, the best performance against 10 other groups tracked in the index. The sector has entered recovery mode after plunging in 2020 as oil prices collapsed amid weak demand resulting from the COVID-19 pandemic.

The energy sector can serve as a place of refuge in an environment of rising inflation, as stocks, in general, tend to perform poorly under such conditions, according to asset management firm Schroders in a report. March 2021 on US asset prices.

“These companies have beaten inflation 71% of the time and generated an annual real return of 9.0% per year on average,” Schroders strategist Sean Markowicz said in the report. “This is a fairly intuitive result. Income from energy stocks is naturally tied to energy prices, a key component of inflation indices. So by definition they will perform well when inflation rises.”

In Tuesday’s note, BofA said its clients preferred energy stocks over investing passively in the sector, and energy ETFs had seen capital outflows for five of the past six weeks.

Among the largest exchange-traded funds in the energy sector, the Energy Select Sector SPDR fund, with total assets of $ 27 billion according to the ETF database, rose 53% this year, and the $ 6 billion Vanguard Energy ETF gained 59%.


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