‘Volatile’ energy sector draws investors

BOULDER — The often-volatile energy sector can be a good investment in these trying times, according to local money managers.

Even though it might sound counter-intuitive to think of volatility and wealth management in the same sentence, wealth-management firm representatives in the Boulder Valley say that from 50 percent to 100 percent of their clients are invested in the energy sector of the economy in some way or another.

“People like to say they don’t like risk, but they love risk. They like it when it’s going up, and hate it when it’s going down,” said Paul Sussman, a money manager at Waddell & Reed Inc.’s Boulder office, who says about 50 percent of his clients have some sort of energy-sector stock investment.

“For older folks and less risk-tolerant folks, don’t put them in energy stocks, though, because they are extremely volatile,” Sussman said.

Sussman said commodities such as oil run in 10-year to 15-year cycles, meaning that a decade-long growth cycle for energy fueled by rapid development in China may now be leveling out, which could mean lower demand and lower prices.

At First Western Trust Bank in Boulder, representatives feel that overseas development will continue, however, according to Warren Olsen, the wealth-management firm’s chief investment officer.

“There is increasing demand for basic commodities globally as hundreds of millions of people begin entering the middle class where their consumption of commodities, including energy, goes way up,” Olsen said in an e-mail. 

In addition, because of that demand for oil, the price of oil is expected to remain at more than $100 per barrel, said Nancy Stevens, chairwoman of First Western Trust Bank.

World events and crises also play a huge role in how the energy sector performs, Stevens said.

For example, Japan’s need for oil is rising as workers there continue to struggle with a nuclear power plant damaged by a tsunami and earthquake on March 11. Unrest in a variety of Middle Eastern countries, especially Egypt, also is keeping prices high, she said. The MSCI World Index for the energy sector was up 13 percent for first quarter 2011, one indicator analysts use to figure out how to advise investors.

“We think now is a good time to invest in energy,” Stevens said. “We see money managers continuing to increase their allocation to energy-related stocks.”

Energy-sector performance also is often seen by investment analysts as a good indicator of how the general economy is doing, said David Wolf, chief investment officer at BSW Wealth Partners in Boulder. So if the world economy is expected to grow, as it is now, energy is a great sector to invest in, he said. Energy was the No. 1 market sector in 2010 in terms of performance, followed by manufacturing, Wolf said.

“When people think the economy is going to turn around and grow and improve, they’ll increase their energy exposure,” Wolf said. However, he also advises potential new energy investors not to try to “time the market,” since energy prices could rise too high and actually retard growth.

“It’s an inflection point that is challenging to predict,” Wolf said.

In any case, it’s good to get investors talking about the potential positives of energy investing, said UBS energy analyst Nicole Decker who was in Boulder recently to discuss her research with Boulder-area investors.

Solar and alternative energy stocks also are a good play in the current market, said Wolf and Dennis Channer, an owner of Cornerstone Investment Advisers LLC in Boulder.

Channer also recommends Canadian oil trusts, which invest in Canada’s own oil fields and yield high dividends as a good place to look for quality energy investments. All of Cornerstone’s clients are invested in energy stocks as part of a diversified portfolio strategy, Channer said.

“People generally see the scarcity of energy as being a place for opportunity as an investor. Add in the fact that push for alternative energy,” Channer said. “There is a lot of focus in those areas these days.”

on Facebook on LinkedIn