This post is not a reaction to the rising political tensions in the Middle East, with the U.S. targeting Iranian nuclear sites on the weekend. Mostly, ‘got oil and gas stocks’ is a common question on this blog. You’re then ready for an oil shock. An oil shock can’t disrupt your lifestyle, in fact it would likely enrich you and your portfolio. With oil and gas stocks in the portfolio mix you’ll have a nice layer of inflation protection as well.
Oil is the most interesting commodity. Oil moves the world from A to B. Petroleum is required in everything from plastics, agricultural, textiles, pharmaceuticals and medical supplies, industrial products and more. Natural gas plays a leading roll, creating the power (electricity) we need to live and survive. These two commodities have done more than any other commodities to move civilization ‘forward’. We’ll leave global warming and pollution considerations aside.
While I read many sources, you can get a lot to cure your curiousity at oilprice.com.
The energy inflation hedge
We should remember that stock markets don’t work during periods of high and unexpected inflation. But energy stocks almost always do the trick. Have a read of – How to protect against inflation.
Retirees and near-retirees might consider dedicated inflation fighters.
Stock markets work historically to trounce inflation over longer periods because we are usually or mostly in a low inflation or disinflationary environment. Given that, they’ve been ideal for accumulators. Broad market ETF portfolios are tremendous wealth creators.
Canadians are fortunate to have a one-stop inflation-fighting ETF from Purpose – the real asset ETF, ticker PRA-T. I also like some dedicated oil and gas stocks in the mix.
From October of 2020, or 400% ag0 😉 I offered …
Investing in Canadian oil and gas stocks.
The returns have been tremendous. I have mostly concentrated in the Canadian Big 4 0il and gas – Canadian Natural Resources (CNQ-T), Suncor (SU-T), Imperial Oil (IMO-T) and Tourmaline Oil (TOU-T). Tourmaline Oil is more weighted to natural gas, ironically.
The Big 4 has greatly outperformed the index (XEG-T) (IYE) with much less risk.
The Big 3 oil stocks are more integrated, giving them more weapons to battle the cyclical nature of the business. Tourmaline is just so well managed in a sub sector (natural gas) that has so many tailwinds this decade. Natural gas demand continues to surge thanks to global energy demand, with data centre demands being a driving force. The electrification of the transportation sector can also be a driving force, pun intended.
Oil price recovers
Given the ongoing wars in the Middle East oil prices have started to recover. In recent months, OPEC+ has returned barrels to a well-supplied market. Experts say they are looking to gain market share from U.S. shale. Here’s a one-year chart …
And in June the Big 4 responded in kind. Testfolio allows me to run the Big 4 stocks (in U.S. prices / markets).
Obviously, when your oil and gas stocks go up a few thousand dollars, you’re not too worried about having to fork over another $30 to fill your SUV.
I’m happy to take tolls on Canadian oil and gas as well, by way of holding the Canadian pipelines. We own Enbridge (ENB-T), TC Energy (TRP-T) and Pembina (PPL).
Have a read of …
Investing in Canadian utility stocks and ETFs.
Pipelines are known as very good defensive all-weather stocks that are also inflation-friendly. You can hold gold as well to round out the inflation-fighting holdings.
I don’t fear an energy spike or scare in any way.
Check out the updated GIC rates at EQ Bank.
Of course, if you like the idea of an energy bolt-on, you can hold individual stocks. You can can also look to XEF-T or BMO’s ZEO-T. For U.S. accounts there is IYE.
It’s a personal call, but you might weight your total inflation fighting bucket to 10% to 20%. And consider the energy allocation already within your core portfolio.
Also, the above is not advice but an idea for consideration.
More Sunday Reads
Thanks so much to Jonathan Chevreau for this piece on MoneySense. It covers our Retirement Club For Canadians. That was a wonderful way to introduce the club to more Canadians.
- Monthly Zoom Calls
- Monthly Newsletters
- A private online (island) community space
The response has been terrific. Brent (our community captain) and I will conduct a live Zoom tour of the Club this week. Use that Contact Dale form if you’d like to receive an invite, or if you’d like to join the club.
Banker on Wheels takes us to a post that suggests a 5% to 15% allocation to Gold offers a risk-management benefit, and gold is also a currency hedge. Also from Banker, investors might not fear the aging global population trend.
At Stocktrades, Dan takes a look at Canadian gold stocks.
At Tawcan, Bob looks at front loading the RESP without sacrificing the Canadian education savings grant.
Check out Justwealth Canada’s top robo advisor.
Dividend Hawk looks at his portfolio news and dividends for the week.
Booming Encore travels along with Canadian Paul Jenkinson who is a retired social worker currently travelling across Canada providing his support to anyone by listening. That’s part of their Living Your Best Encore Series.
And speaking of oil, Isabelnet shows that oil can be an economic indicator. But of course, we’re not going to react, we’re ready for whatever comes next 🙂
And also on MoneySense, Financial Planner Jason Heath looks at how to manage withholding taxes in retirement.
Morningstar Canada looks at how the largest ETFs in Canada performed in May.
And Wealthsimple explores one of our favourite themes …
Defensive certainly did their thing (again) in a period of turbulence.
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OUR CASHBACK CREDIT CARD
We make between $40 to $70 every month! And that’s on everyday spending. There are no fees with …
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For May we received $34.28 in cash. It was our lowest month of spending in years! You can select 3 categories for 2% cash back. The rest pays at 0.50%. That’s one of our lowest spending levels of the last several years. Our fuel bill is way down and so is our grocery bill.
That cash went into my TFSA account to help buy some CBIL-T and HUTS-T.
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Good to know. XEF-T holdings not energy related ex Shell? Canada in stagflation?