How much has the recent rise in the oil price been about the Iran situation, will the ending of that cause a major setback in the oil price? Clearly the Iran affair weighed somewhat on the oil price but the subsequent only modest pull-back says more about supply and demand than short-term geo-political issues. The fundamentals in this matter, over time, remain secure. The economies of India, China, etc., will continue to grow disproportionately; their demand for energy will also grow and supply be evermore inadequate.
Why alternative energy investments could outperform oil
At RHAM we have taken the view that the real investment opportunity lies in the alternative energy field which, over recent years, has become a serious business and is more profitable the higher the oil price goes. Furthermore, because of energy supply constraints, its importance grows in magnitude; it is therefore no surprise that investments in this sector have been outstanding.
The holdings we have in Merrill Lynch New Energy Fund continue to be a star performer, justifying our decision to choose this sector. It remains our view that alternative energy, as an investment, will out-perform conventional energy investments. To give some substance to that statement, since the beginning of October last year to date, Merrill Lynch New Energy Fund has increased by over 30%.
How an economic slowdown will affect alternative energy
The big question hanging over the commodity and energy story (excluding precious metals) is “will a global economic slowdown materially affect prices?” We think it will, so we watch carefully for how this will impact upon alternative energy. The indications are that its importance will continue as, in the long run, there just isn’t enough energy readily available to go round, so whatever the economic conditions are, alternative energy will be of growing importance. At current rates of growth, Chindia’s economy will double and redouble every eight years whilst the developed world will double and redouble every 25-years. So in 25-years, Chindia’s economy will be eight times bigger and the developed world’s economy only twice as big. The consequences are mind-numbing and graphically suggest an ever greater investment exposure to the commodity sector.
By John Robson & Andrew Selsby at RH Asset Management Limited, as published in the Onassis Newsletter, a fortnightly newsletter that gives insight into the investment markets.
For more from RHAM, visit https://www.rhasset.co.uk/