Feature Article

Although our outlook for oil prices and the US energy patch favors an overweight position in core midstream holdings, nimble investors can generate alpha in upstream names by buying when oil prices retreat to the low end of their range and taking some profits off the table when they recover. Timing these moves is easier said than done. We highlight our favorite upstream stocks and dream prices to help instill discipline on the buyside.

In this environment, we prefer midstream names that offer the best leverage to volumetric growth stories and have the balance sheet strength to pursue joint ventures with cash-strapped rivals. Not only do these MLPs pay generous yields that can improve your total return during periods of volatility, but the most recent down-cycle also prompted many midstream operators to take the necessary steps to put themselves on a more sustainable path by cutting their distributions and paying down debt. We highlight our favorites and dream prices for period of heightened volatility.

Over the past month or so, we have added more cyclical exposure to the Focus List to balance our overweight position in midstream names.

First-quarter results and commentary from the Big Four oil-field services firms provide key insights into the potential for further efficiency and productivity gains in US shale and the cyclical recoveries in proppant and pressure pumping. See Oil-Field Services: The Tale of Two Cycles Continues.

The International Portfolio’s conservative sleeve posted an average total return of 24.2 percent in 2016, while our aggressive picks gained an average of 48.9 percent. Their fortunes have reversed this year: Our conservative holdings have gained an average of 4.9 percent, while our aggressive picks have lost 5.2 percent. This shift reflects investors taking a risk-off approach after last year’s big run-up in commodity-sensitive names. We highlight some of our favorite international stocks for conservative investors as well as a few interesting speculations.