erryl:

FNARX... realancing when oil is at a record high is probably a good idea.

Do you think an energy fund should be traded according to prevailing conditions, or held long-term to overweight the sector?

I bought VGENX last August, one of the smartest moves I ever made.   (Unfortunately it only goes part-way toward offsetting my more bone-headed moves.)   My feeling has been that energy crises are going to be with us for a very long, long time:

• Dwindling discoveries of new fossil fuel reserves
• Increasing consumption, especially growing economies (BRIC etc.)
• Little chance of serious conservation efforts in the US
• Minimal short-term impact of alternatyive/renewable energy development
• Nuclear unlikely to move quickly in the USA
• Existing oil exporters (Iran, Saudi, Venezuela, Iraq, Russia, Nigeria) are either unstable or unfriendly

Hence I haven't given any thought to trading the fund.

I have gotten over weighted in energy (close to 10% of my portfolio), because I inherited a portfolio from my father that was 100% invested in energy stocks. I had the impression that this poster was questioning whether or not it was a good time to take some profits and return to a more normal AA.

If you have gotten over weighted in energy for whatever reason, I think that it might be a good time to rebalance back to what you are willing to hold long term.  I normally don't hold more than 5% in sector funds (or individual stocks) in any single sector... I currently have sector holdings in health care, real estate, commodities/gold, and energy.  Energy may very well be like tech was in the 90's, and it will eventually end in much the same way.  It could be in a few months or it could be in a decade.

I am going to try to use T/A to pick a good time to sell some of my energy holdings until I get back to 5%.  If you (the figurative "you") don't feel comfortable using T/A, we are currently at very high oil prices.  We may go to $200/brl oil, but that is not the most likely outcome in the near future.  If you are going to rebalance, do it while oil prices are (still) high.

erryl

 

Thanks Erryl.  Yes I agree if someone has become overweighted over their desired allocation, now would be a good time to rebalance.   I invested about 4% into VGENX and now it's gone to 5% - I don't see any point in making any changes.    I think I could easily let it run a lot further before trimming.    While I agree that oil prices may flatten or drop, I don't think the energy sector as an investment will plummet...for the reasons noted below.

Chang, as you may know, I am currently overweight in energy myself.  I am closer to around 15% overweight probably.  My reason for doing this is for my own protection.  I am concerned that energy prices may continue to climb in future years, and that obviously impacts my pocketbook (for the reasons you mentioned yourself). 

My goal is not to make a killing in energy stocks, because even if I do, that probably means that I have gained money on the one hand, but am losing it out of my wallet on the other side anyway.  As it currently stands, I am less concerned about losing market value on my energy investments than I am with energy prices continuing to go up (if it happens I benefit from lower prices in my everyday life).  Essentially I am matching my investments in this area as a hedge against my everyday expenses.

Although I am not adding to my holdings at these levels, and in fact am reinvesting my dividends outside of the sector, I also don't think it's necessarily time to sell.  I would definitely continue to monitor things to see if we enter a speculative bubble where the pricing of energy companies raises to absolutely outrageous levels (or oil rises to a truly unsupportable price), but I don't think we're there yet.  At the point where everyone is praising energy stocks and proclaiming that they are the only thing to invest in, then I will start to get concerned. 

Also, I think it helps to keep in mind how much you're actually holding.  Even if you were holding as much as 20% in the energy sector and it dropped in half, you'd only lose 10% of your portfolio.  That is a bad loss, but not insurmountable.  With only 5% that concern is even less pressing. 

Nagorak:

Chang, as you may know, I am currently overweight slightly in energy.  My reasoning behind this is that it is for my own protection.  I am concerned that energy prices may continue to climb in future years, and that obviously impacts my pocketbook (for the reasons you mentioned yourself). 

Your hedging is an interesting and innovative way to use investments as part of your overall income and expense picture.    Interestingly enough I just relocated to Dubai where the price of gas is cheap.   I only picked up my rental car a few days ago and haven't filled the tank yet, but I understand it's around $1.00-1.50 a gallon.   That's actually much more expensive than in neighboring Saudi, where it's around $0.35 a gallon.

Gary, I thought your three-combo was not bad! and thought you would stick with them. Well, investing is a personal thing. According to M*, energy is about 12-13% in S&P. One could buy sector funds (FNARX, FSENX, PRPFX, etc)  to participate in energy or or could buy energy heavyer funds  (FLVCX, FDFFX, FLATX, CGMFX, etc) or both. I am rather heavy in energy and material, and they are becoming my longest hold funds these days and I expect to stay as such for many years. I firmly believe NR is the base of economy but I expect to move up/down 7-10% within a week or month. I noticed that complementing NR funds with some glod funds would reduce volatility somewhat viewing  from 50,000 feet above. Thus PNRxX like funds offer more smoother ride than pure energy and NR funds do, IMHO.

If one has decided to trim a fund, it seems the best time to do is when its RSI value is very very close to 70. FWIW. KM

 

 

I don't see anything wrong with 5% either... that is my long term goal allocation for the energy sector.  I would tend to ride a winning sector as well, but if your holdings get way over your long term allocation, keep your finger on the trigger.  Remember tech in 2000... and be wary of "it is different this time" arguments (they always sound credible and they always end the same way).

There is going to be tremendous political pressure by incumbants to not upset the masses with very large price hikes.  Long term, I think that high prices of oil are here to stay and that is probably a good thing.  Reduced reliance on oil is needed for multiple reasons, including trade deficits, air pollution and global, and the limited nature of the resource (eventually, we run out of oil no matter what we do).  Shorter term, oil could get relatively cheap again.

erryl

 

maruyamakiyoshi:

Gary, I thought your three-combo was not bad! and thought you would stick with them. Well, investing is a personal thing. According to M*, energy is about 12-13% in S&P. One could buy sector funds (FNARX, FSENX, PRPFX, etc)  to participate in energy or or could buy energy heavyer funds  (FLVCX, FDFFX, FLATX, CGMFX, etc) or both. I am rather heavy in energy and material, and they are becoming my longest hold funds these days and I expect to stay as such for many years. I firmly believe NR is the base of economy but I expect to move up/down 7-10% within a week or month. I noticed that complementing NR funds with some glod funds would reduce volatility somewhat viewing  from 50,000 feet above. Thus PNRxX like funds offer more smoother ride than pure energy and NR funds do, IMHO.

If one has decided to trim a fund, it seems the best time to do is when its RSI value is very very close to 70. FWIW. KM

 

 

 

Well FEMKX, FNARX and FICDX are 35% of my equities (and 27% of my whole portfolio) so I was getting a little concerned that I'm in a ticking time bomb so to speak. And boy have they performed. One year totals were FEMKX-25%, FICDX-21%, and FNARX-33%. I'm actually thinking about putting the money I just took out of FNARX back into it. It's been a wash the last couple of days so trading wouldn't hurt too much. I guess I like living on the edge. Myabe I let my stomach guide me not my brain. Maybe I'm greedy right now.

I heard one analyst that says that oil should be about $85 a barrel but because so many people are buying commodities that that alone is pushing the price up.

I just don't know. I should just do what I did this spring and that is set it and forget it.

Gary

I think it's worth being prepared for oil to potentially drop to $85 or maybe a little further than that.  That is not out of the question, in my opinion.  I'm actually a bit surprised by how oil has performed this year, despite being overweight energy myself.  Ever since oil breeched $100 it seems like it has just kept on going up relentlessly. 

I wouldn't be surprised if we're due for a substantial pull back, but who really knows.  I don't invest for the short term, so I'm not that concerned about what happens.  It's worth keeping in mind though if you have a shorter term mindset that you may want to follow different rules. 

After erryl analyzed my portfolio I am slightly overstocked stocked on oil so I will stand pat for the moment. I think it is in the 23% range and he recommends along with others that 20% would be an absolute limit. Even then I have to be wary that it is not the tech stocks of 2000. However being in technology I never understood back then what people were buying into as the internet was not a new paradigm. The internet would help businesses sell stuff and that is how Google makes it money but it really was and is just a communication tool. It is just an electronic replacement for other systems.

But oil is real and as long as buying is not speculative (and now it probably is somewhat speculative) it should be all right.

 Gary