Investors look to energy as inflation creates discounts

Investors have poured into energy funds over the past month as the inflation theme has dominated markets, according to Bank of America (BofA).

BofA’s global research said inflation-sensitive sectors such as energy and materials were still trading at big discounts to history across a variety of metrics.

BofA data from its private clients founds energy exchange traded fund flows accounted for 36% of asset under management over the past four weeks. This was followed by bank loans, materials, financials, and Treasury inflation-protected securities (TIPS).

Last week, energy accounted for US$1.3 billion ($1.68 billion) in equity inflows, following tech ($3.2 billion), financials ($2.6 billion), and consumer ($2.2 billion).

BofA data also found that so far this year, commodities were the highest-returning sector at 20.2%, followed by S&P 500 (5.8%), real estate investment trusts (REITs) (5.2%), MSCI emerging markets (4%), and MSCI EAFE (3.8%).

According to FE Analytics, over the year to 28 February, 2021, the highest-returning energy and commodity fund was Terra Capital Natural Resources at 94.7%.

This was followed by ETFS Battery Tech and Lithium ETF at 66.23%), BT Classic Investment BT Natural Resources at 40.8%, BetaShares Australian Resources Sector ETF at 34.2%, and SSGA SPDR S&P ASX 200 Resources at 31.9%.

The commodity and energy sector, within the Australian Core Strategies universe, average return during this period was 23.37%.

Top-performing commodity and energy funds over the year to 28 February 2021

Source: FE Analytics

Over the longer-term, the top five best-performing funds were similar with the addition of Select Baker Steel Gold. The ETFS fund was launched in 2018.

The BetaShares fund came in in top spot with a return of 173.8% over the five years to 28 February, 2021.

While the Select Baker Steel fund rounded out the top performing funds during this time period at 138.4%, it had the highest volatility at 31.74.

This was compared to the sector average return of 74.29% and an average volatility of 13.51.

Top performing commodity and energy funds over the five years to 28 February 2021

Source: FE Analytics