Joseph Dancy's Blog

Factors that should contribute to this outperformance include (1) an accommodative monetary and fiscal policy, (2) investors returning to the equity market (see note below on the ‘torrent’ of funds returning to the equities market), (3) reasonable valuations of stocks in the sector, (4) a positive and improving business outlook, (5) price momentum/persistence/relative strength in the equity markets, and (6) merger, acquisition and deal making activity.

In 2011 we think a number of very positive themes will play out for investors. We see the following developments in 2011, all of which create interesting investment opportunities.

Platts last week that China's crude oil demand reached record levels in December, rising 18% year over year to a record 9.6 million barrels per day (b/d) average. Oil demand in December was up 7% from November's the previous record high – so it appears demand continues to ramp upward in a significant manner. The continued increase in demand has been labeled as ‘astounding’ by industry analysts.

To measure the degree of social development Morris examined four factors: (1) energy use per capita, (2) urbanization, (3) military capacity, and (4) information technology. Investors in the energy sector have long been aware of the first factor and its influence on economic activity and social development - the capture of energy is a necessary condition for existence.

Return persistence or price momentum - the tendency for stock prices to trend in the same direction – was the topic of an article in a recent edition of the Economist magazine.

In a development that is very positive for active portfolio managers—in fact one of the most bullish developments in the last couple of years in our opinion—the strong correlations between individual stocks and the bond market or major market indexes since the 2008 financial crisis are ’decoupling’.

Illustrating how tight the global grain markets are becoming, and the concern of governments over higher grain prices, yesterday Russian Prime Minister Vladimir Putin said he had signed two governmental resolutions to start supplying grain from the state intervention fund to Russian regions affected by this year's abnormal heat and drought.

Last month the UN’s Food and Agriculture Organization’s twice yearly Food Outlook report noted that food prices are rising rapidly putting the world ‘dangerously close’ to a new food crisis. The report also predicted higher prices next year, and noted the need for farmers to ‘expand substantially’ their production, particularly for corn and wheat.

The global economy continues to expand and is using more energy. In our opinion demand increases coupled with technological advances in extraction has created one of the best investment environments in years.

Trends in the energy sector remain positive. We think current conditions and trends have created one of the best investment environments for us in years.