A focus on quality as volatility persists
The risks of a prolonged U.S.-China trade standoff have increased, but we believe long-term fundamentals in emerging markets will offer opportunities.
Exploration and production companies grew rapidly after the onset of the “shale revolution” that boosted U.S. oil output. High-quality independent companies now are focused on increasing efficiency and reducing costs. Select shale producers have shown that they can be competitive on price with major oil exporting countries and grow profitably at current levels. They have continued to grow because of their efficiencies, productivity gains and strong balance sheets. North American shale companies have become the global swing producer in response to changes in supply and demand.
Source: U.S. Energy Information Administration
David Ginther, CPA, and Michael Wolverton, CFA, portfolio managers of Ivy Energy Fund, believe that companies with access to the highest-quality drilling acreage and best technology stand to benefit at current oil prices.
Consider these examples of stocks that we believe may benefit from development of North American shale.
Parsley Energy, Inc. (PE)
Parsley Energy is a Permian-focused independent oil and natural gas company that was founded in 2008. It boasts a premier drilling acreage position, strong well results and a conservative financial strategy. The company operates hundreds of vertical and horizontal wells, but has transitioned from vertical drilling to horizontal drilling as it seeks to capture the full potential of its Permian resources.
EOG Resources Inc. (EOG)
EOG Resources is one of the largest independent (non-integrated) crude oil and natural gas companies in the U.S. It has net proved reserves totaling about 2.5 billion barrels of oil equivalent in the U.S., Canada, Trinidad, the U.K. and China. About 97% of those reserves are located in the U.S. It has areas of operation in major shale basins in the U.S., including Eagle Ford, Williston Basin and Marcellus shale.
Pioneer Natural Resources Co. (PXD)
Pioneer Natural Resources is an independent exploration and production company based in Texas. It is among the largest producers from wells in Permian Basin and Eagle Ford shale areas. Pioneer also is a large natural gas producer in Texas and Colorado.
Past performance is not a guarantee of future results. The opinions expressed are those of the Fund’s portfolio manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through Dec. 31 2018, are subject to change based on market conditions or other factors, and no forecasts can be guaranteed. The holdings discussed are for illustrative purposes only and are not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy.
Investment return and principal value will fluctuate, and it is possible to lose money by investing.
PE: 3.12%, EOG: 4.15%, PXD: 4.10% of net assets as of 12/31/2018.
Risk factors: The value of the Fund’s shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. Investing in the energy sector can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy companies in complying with environmental safety regulations. These and other risks are more fully described in the Fund’s prospectus. Not all funds or fund classes may be offered at all broker/ dealers.