Challenging Markets How to prepare your portfolio?

Transcription

1 21 st National Pension and Institutional Investor Summit Tuesday, November 17, 2015 Challenging Markets How to prepare your portfolio? Topics address current issues such as currency, rates, and alternatives Uncover ways to manage your portfolio to meet current market challenges Dallas Marriott Las Colinas Hotel Dallas, Texas, November 16-17, 2015

2 Luncheon Presentation: Revolution in Energy Speaker: Robin Wehbé Global Natural Resource PM The Boston Company Asset Management, LLC 21 st National Pension and Institutional Investor Summit Tuesday, November 17, 2015

3 A Technological Revolution in Energy Fall 2015 One-On-One Use Only

4 A Technological Revolution: Cheaper Fuel & Electricity Power America rev o lu tion ˌrevəˈlo osh(ə)n/ noun 1. a forcible overthrow of a government or social order in favor of a new system. e.g. technology has enabled the revolution that shifted oil market stewardship from OPEC to the United States It needs to be recognised that OPEC s golden age in the oil market has been lost. Igor Sechin, CEO Rosneft, August

5 Drilling Technology Cuts Risk, Investment Cycle-Time Some information contained herein has been obtained from third party sources that are believed to be reliable, but the information has not been independently verified by TBCAM. TBCAM makes no representations as to the accuracy or the completeness of such information. 5

6 Cheaper Crude Hits the Value Chain Fractioning Column % of a Barrel of Oil Bottled Gas <1% Petrol for Vehicles 46% Chemicals 20% Jet Fuel, Paraffin for lighting and heating 8% 94% Diesel Fuels 20% Lubricating Oils, Waxes, Polishes 2% Fuel for Ships, Factories and Central Heating 2% Roads and Roofing 2% Data source: U.S. Energy Information Administration, TBCAM. Some information contained herein has been obtained from third party sources that are believed to be reliable, but the information has not been independently verified by TBCAM. TBCAM makes no representations as to the accuracy or the completeness of such information. 6

7 Cheaper Gas Deflates Power Costs Sources of U.S. Electricity Generation, 2014 * Average U.S. Electricity Prices ** $16 $25,000 $14 $12 $20,000 $10 $15,000 $8 $6 $10,000 $4 $5,000 $2 $0 $0 US GDP, Nominal SAAR billions USD (right axis) Avg Retail Electicity Price, c/kwh Natural Gas Price, NYMEX $/mmbtu *Source: U.S. Energy Information Administration, Electricity Power Monthly (February 2015). Preliminary data for Note: Sum of components may not equal 100% due to independent rounding. **Source: U.S. Energy Information Administration, Bloomberg, TBCAM; 12/31/00 6/30/15. Some information contained herein has been obtained from third party sources that are believed to be reliable, but the information has not been independently verified by TBCAM. TBCAM makes no representations as to the accuracy or the completeness of such information. 7

8 U.S. Supply Killed the Market & Cost Curve "Perhaps the great lesson OPEC has taught was how U.S. E&Ps could operate at $60 not $80." Chairman of a U.S. land services company, September 2015 The Tipping Point of Supply and Demand Average North American Onshore Well Economics Market size in thousands of barrels per day 95,000 90,000 85,000 80,000 75,000 70,000 65,000 60, Supply ex US US Supply Demand WTI Price of Oil ($) Pre 2015 Post 2015 F&D $20.00 F&D $16.00 LOE $10.00 LOE $8.00 Tax 5% Tax 5% $32.50 $25.80 Return 15% Return 15% Transport $10.00 Transport $5.00 BE $47.00 BE $35.00 Oil $70.00 Oil $52.00 Gas $2.50 Gas $2.50 Rev/boe $49.50 Rev/boe $ % Oil $ % Oil $ % NGL $ % NGL $ % Gas $ % Gas $0.50 Cash Margin $2.15 Cash Margin $2.18 Graph Source: U.S. Energy Information Administration, TBCAM data, Bloomberg, 1/30/04 12/31/14. Table Source: TBCAM estimates. Some information contained herein has been obtained from third party sources that are believed to be reliable, but the information has not been independently verified by TBCAM. TBCAM makes no representations as to the accuracy or the completeness of such information. 8

9 A Crystal Ball for Oil: Producers Sell Forward to Hedge New Investments p Summer 2014 Fall/Winter 2014 Curve: Flattening E&P: Investing Prices: Easing p Curve: Inverting E&P: Investing Prices: Plummeting t t p Spring/Summer 2015 Curve: Twisting E&P: Cutting Prices: Near Ease, Long Rise p Today Curve: Shifting E&P: Irrelevant Prices: Falling t t Previous Oil Futures Curve Current Oil Futures Curve For illustrative purposes only. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. 9

10 Hedgecliff: Collapsing the Bid/Ask Spread, Pending M&A? Top Half of Exposed Public E&Ps Decline in Revenue per Barrel for $40 Company 1-43% Company 2-39% Company 3-38% Company 4-37% Company 5-35% Company 6-35% Company 7-34% Company 8-33% Company 9-31% Company 10-30% Company 11-30% Company 12-30% Company 13-30% Company 14-26% Company 15-24% Company 16-19% Company 17-12% We are in front of the mother of all M&A waves. CEO of a U.S. land services company, September 2015 It s going to rain. Everyone will get wet; some might even drown. CEO of a U.S. E&P company, September 2015 Table Source: Simmons & Company International. Some information contained herein has been obtained from third party sources that are believed to be reliable, but the information has not been independently verified by TBCAM. TBCAM makes no representations as to the accuracy or the completeness of such information. 10

11 Opportunities Across the Value Chain Producers Servicers Transporters Processors Manufacturers Exploration & Production (E&P) Energy Services MLPs, Railways, Shipping Refining, LNG, Terminals/Ports Fuel, Plastics, Coatings, Fertilizers Own the Oil Extract the Oil Move the Oil Aggregate & Upgrade the Oil Buy Oil Derivatives, Sell Final Product Oil price sensitive short investment cycle limits upside Activity sensitive benefit from volume growth Volume sensitive benefit from fixed investment growth High barriers to entry creates bottleneck, benefits from oversupplied oil End consumer exposed, benefit from stable oil to execute business model Unattractive Very Attractive Mildly Attractive Very Attractive Attractive No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. 11

12 Oil Largest Driver of U.S. Economic Returns? Consumer Disc Industrials Financials Telecom Services Utilities Consumer Staples Materials Health Care IT Energy Improvement in EVA Spread 2010 vs % -5% 0% 5% Airlines Specialty Retail Oil & Gas Refining & Marketing Road & Rail Household Durables Auto Components Trading Companies & Distributors Hotels, Restaurants & Leisure Media Construction & Engineering Air Freight & Logistics Textiles, Apparel & Luxury Goods Data Processing & Outsourced Svcs Machinery Multiline Retail Electrical Equipment Commercial Svcs & Supplies Industrial Conglomerates Aerospace & Defense Application Software Oil & Gas Equip & Svcs Automobiles Oil & Gas Storage & Transport Electronic Components Communications Equip Internet Software & Svcs Leisure Products Tech Hardware, Storage & Peripherals Semiconductors IT Consulting & Other Svcs Oil & Gas Drilling Integrated Oil & Gas Oil & Gas E&P Internet & Catalog Retail Systems Software Professional Services Changes in Two Best & Worst Sectors, by Industry -29% -24% -19% -14% -9% -4% 1% 6% 11% 16% Source: Bloomberg, based on S&P 500 Index constituents. Some information contained herein has been obtained from third party sources that are believed to be reliable, but the information has not been independently verified by TBCAM. TBCAM makes no representations as to the accuracy or the completeness of such information. 12

13 Commodity Investments As An Inflation Hedge Commodity-exposed equities have done the job in all inflation regimes Average Monthly Return by Inflation Regime January December 2013 Average Monthly Return (%) < -2% (15) -2-0% (19) 0-2% (91) 2-5% (226) > 5% (177) Inflation Rate (Number of Months) CRB Commodity Index S&P 500 Natural Resources Equities S&P 500 Index Deflation Inflation Sources: St. Louis Fed, Commodity Research Bureau, FactSet. Some information contained herein has been obtained from third party sources that are believed to be reliable, but the information has not been independently verified by TBCAM. TBCAM makes no representations as to the accuracy or the completeness of such information. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. [7523] 13

14 Disclosure This publication or any portion thereof may not be copied or distributed without prior written approval from The Boston Company Asset Management, LLC (TBCAM). Statements are correct as of the date of the material only. This document may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorized. The information in this publication is for general information only and is not intended to provide specific investment advice or recommendations for any purchase or sale of any specific security. Any statements of opinion constitute only current opinions of TBCAM, which are subject to change and which TBCAM does not undertake to update. Due to, among other things, the volatile nature of the markets and the investment areas discussed herein, they may only be suitable for certain investors. Some information contained herein has been obtained from third party sources that are believed to be reliable, but the information has not been independently verified by TBCAM. TBCAM makes no representations as to the accuracy or the completeness of such information. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. [15532] 14

15 Luncheon Presentation: Revolution in Energy Speaker: Robin Wehbé Global Natural Resource PM The Boston Company Asset Management, LLC 21 st National Pension and Institutional Investor Summit Tuesday, November 17, 2015