Over the past 100 years, there have been two periods in which the stock market was driven higher mainly by one sector of the economy.  In the 1920’s, it was utilities and in the 1990’s, technology led the way.  Why did this happen?  In the 20’s, people were getting electricity in their homes for the first time.  In the 90’s, advances in technology and telecommunications drove the market to all-time highs.  At the present time, we don’t necessarily see a sector that will transform our lives like electricity and technology did in the past.  However, we do believe one sector will outperform over the next few years – energy.

A little over a year ago, we talked about the energy sector being a good place to invest because it was so cheap at the time.  Since then, energy has rebounded, but is still trading below the sector’s historical valuation levels – see the chart below provided by BP Capital Fund Advisors.

The reasons we believe this sector may outperform moving forward include:  1) the sector is undervalued historically; 2) the Trump administration is more pro-energy than any administration in modern history which should lead to growth; 3) energy companies tend to pay an enormous amount of tax as a group and will benefit significantly from a lower corporate income tax rate; and 4) OPEC’s new deal will reduce world oil supply and keep oil prices at profitable levels for drilling.    Although we don’t believe the energy sector will be as transformative for our lives as electricity and technology were during the respective heydays, we do believe the sector’s growth to fair valuation levels make it a very attractive investment going forward.

What does this mean for investors?

While our energy investments have seen positive returns in 2016, THOR’s investment team still believes there is tremendous value in this sector.  Our client portfolios are diversified across many different investments in the energy sector and we believe the returns should continue to be positive over the next 2 to 3 years.

Our next market update will come in early January as THOR runs on a skeleton staff between Christmas and New Years.  We wish all of you a very Merry Christmas and Happy and Safe New Year!