Thursday, December 22

Before any other news an important issue we would like to raise is the impending DJI 20,000 mark. Some time in the next week or two the DJI will cross the 20,000 mark for the first time in its history. Analysts are calling this number a point of “psychological resistance” but emphasizing that even though there is no technical point of resistance it will probably remain a real point in the near term. More than once in the last few days analysts suspect that the market as a whole was negatively affected by proximity to this point, and we have felt that a few times (including today). Once that line is crossed this is expected to stop, and the news of the crossing is expected to draw increased foreign investment and drive up volume for awhile.

Today we added two new issues to our portfolio – XLE and CORR. All major indices fell throughout the trading day (DJI down 0.20%, COMPX down 0.50%, and SPX down 0.30%) making this a good day to take new positions at slightly reduced cost.

In order to take advantage of the probable long-term bullish energy sector, a very easy move is to hold positions in the major petrochemical companies – Halliburton, Chevron, Pioneer, and the rest. Holding positions in all of them is the safest way to have diversified exposure to the energy sector in general – but doing so would result in more challenging management (many more small positions) or limited diversity and therefore increased risk. The obvious solution was to find a fund that kept a strong majority of its value in these large producers, and still had very low management costs. We compared Funds based on correlation to the sector overall, down period loss avoidance, and a strong emphasis on low expense ratio. The clear winner was XLE – they’ve outperformed the energy fund index for the last decade, and have an expense ratio of only 0.14%. There is a slight seasonality to their returns, but this has smoothed out in the last few years.

Our other position was much more speculative, but one that might have a very strong payout in the near term. We acquired shares in CorEnergy Infrastructure Trust Inc (CORR), an energy company REIT. This issue maintains a relatively low P/E of 21.14, and this is expected to fall further early next year to 15.50. Volume is very low for this issue – averaging only 150,000 over the last 90 days. We have a near term price target for this issue of 35.15, but may choose to raise this as consensus is closer to 37.00.

 

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