Energy beats broader market for first time in five years

Divesting from oil and gas has been a profitable trade for the last couple of years. Now, for the first time since 2016, investors who held on to energy shares are poised to outperform the broader market.

Divesting from oil and gas has been a profitable trade for the last couple of years. Now, for the first time since 2016, investors who held on to energy shares are poised to outperform the broader market.

Oil and gas stocks have been the top market performers across North America even as the world ramps up efforts to curb its reliance on fossil fuels. In New York, the S&P 500 Energy Index has outperformed the broader S&P 500 by 21 percentage points so far this year, with the top performing stock, Devon Energy Corp., gaining a whopping 167 per cent. 

In comparison, the S&P 500 Ex-Energy Index, which measures the broader U.S. market without oil and gas companies, underperformed the S&P 500 Energy Index by 22 percentage points. ProShares launched an ETF in 2015 to emulate the ex-energy index. 

All of that is somewhat of a vindication for dedicated energy funds, which bet on energy companies’ ability to offset changing investor preferences by rewarding shareholders with dividend hikes and aggressive share buyback programs as commodity prices rose. 

And it’s not over, some say.

“There’s a massive appetite to invest in it because it’s just spewing out cash right now,” said Rafi Tahmazian, partner and senior portfolio manager with Canoe Financial in Calgary. Tahmazian’s energy producer-focused fund is up 91.2 per cent year to date as of the end of November.