Here’s how it felt to be an energy investor during the first half of 2015:

In case you’ve been in hibernation and can’t access the video or the link above, it’s been an ordeal akin to that of salmon struggling upstream only to end up as bear buffet.

Although we haven’t seen anything like the equity selloff that developed following the oil crash last fall, we also haven’t seen much of a recovery.

The benchmark ETF, the Energy Select Sector SPDR Fund (NYSE: XLE), suffered a loss of 3.8% including dividends between Jan. 1 and June 30. The typically riskier SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP) did a bit better than that at -1.8% by stocking up on the resilient refiners. Meanwhile, the Alerian MLP Index grouping most of the largest midstream processors was down 11% even after factoring in its components’ distributions during the first half of the year.

Against this unappealing backdrop, the 80 energy-related securities recommended by The Energy Strategist at some point in the first half averaged a total return of -1.4% for the six-month stretch. That’s not exactly a mauling, but let’s just say we’re no closer to our destination.

And the two iterations of our Best Buys list applicable in 2015 have combined for an average loss of 4.2%. Best Buys they haven’t been, so far.

Now, this seems like a good time to note that there’s nothing all that special about June 30. The Earth doesn’t even reach the halfway point of its annual trek around the Sun until the early morning of July 2. More to the point, the stock market didn’t close for good at the end of June, so all we have here is one fairly arbitrary checkpoint among many.

The upshot is that the many numbers we’re about to share are not any good at extrapolating the future, but somewhat useful in describing recent market trends. They’re a means, not the end.

We’re not under the illusion that any subscriber’s portfolio precisely matches our model ones. But we do want to be accountable and to look back every once in a while after spending a lot of time straining to glimpse the future. The end of the second quarter is as good a time for that as any.

Let’s start with some broad trends:

• Energy stocks continue to lag the lethargic broader market, as already noted

• The many midstream processors organized as master limited partnerships have surprisingly (at least to us) trailed the oil and gas drillers despite being much better insulated against low energy prices

• Refiners and tanker fleet operators have performed best since the start of the year, as we had forecast

• Smaller-cap drillers have slumped so far in July alongside oil prices

• Global energy fundamentals remain mixed, with U.S. demand robust, U.S. output so far showing no meaningful letup, the economic slowdown in China feeding worries about emerging markets and Iran planning to export much more crude should it succeed in negotiating an end to sanctions over its nuclear program.          

The underperformance of MLPs, which endured their worst first half in at least two decades, certainly weighed on our Conservative Portfolio. But offshore drilling contractor Ensco (NYSE: ESV) and leading rig outfitter National Oilwell Varco (NYSE: NOV) proved even bigger deadweights, losing nearly 25%.

Despite its ample income stream, the Conservative Portfolio averaged a decline of 7.6%, and would have done worse without the 33% return in Delek Logistics (NYSE: DKL), the refinery logistics MLP benefiting from its sponsor’s rapid growth.

The notes column on the right shows all Best Buy designations, upgrades, downgrades and full or partial sales since the start of the year. It also shows a security’s performance after a full or partial sale recommendation through July 9, so that you can see how a given call has played out in the near term.


Moving on to the Growth Portfolio, its 2.4% average return in the first half of the year was powered by big refiners Valero (NYSE: VLO), Marathon Petroleum (NYSE: MPC) and Tesoro (NYSE: TSO), which gained 28%, 18% and 17% respectively. And let’s not forget the contributions of Energy Transfer Equity (NYSE: ETE), which not only returned more than 13% for its own unitholders but also helped rival Williams (NYSE: WMB) advance 34% by means of its recent (and thus far rejected) buyout bid.

The biggest drag on the Growth Portfolio’s performance was Chesapeake Energy’s (NYSE: CHK) 42% tumble; the retrenching gas producer is now cheap enough to figure among the leading buyout candidates, the more so with financier Carl Icahn eyeing the shrinking value of his 11% stake.

The Aggressive Portfolio’s shot at first-half glory was squandered in the Jan. 20 purge that locked in heavy year-to-date losses on a half-dozen small-cap drillers and ethanol producers. Two of them have rebounded more than 20% since, while another has subsequently rallied more than 50%. So dodging Emerald Oil’s (NYSE: EOX) subsequent 78% collapse just isn’t enough of a consolation.

While we bottom-ticked a couple of the names, Emerald’s implosion highlights the risks we were trying to avoid. As noted at the time, the goal of minimizing paper losses sometimes conflicts with the desire not to feature stocks we no longer trust. We’re still glad to be moving forward without these lottery tickets.

But the Aggressive basket was also the home of alternative energy projects developer SunEdison (NYSE: SUNE) and Chinese solar panels manufacturer JinkoSolar (NYSE: JKS), both which rallied some 50%. The refiner Alon USA Energy (NYSE: ALJ) returned nearly 40% following our March 2 recommendation.


Despite mistiming January’s housecleaning, our portfolio tweaks on the whole added value. The 14 new recommendations made before June 30 went on to return 3% on average, and though only seven produced a positive return by the end of the second quarter, none lost as much as 15%, while Alon and Teekay Tankers (NYSE: TNK, +24%) were delivering quick payoffs.

On the flip side of the coin, the 17 recommendations we dropped before June 30 went on to lose 4%, on average, by July 9.

As pledged in January, we managed to arrest portfolio creep, reducing the number of current recommendations from 66 at the start of the year to 61 now.

As Robert notes this week, the oil market fundamentals remain treacherous, and we’ll continue to lean heavily on refiners and tankers to offset our exposure to drillers. We fully expect the midstream sector to revive in time, and natural gas prices at least are likely to be higher a year from now.

But we’re not going to force anything if obvious opportunities don’t present themselves. The next best thing to making money is not losing it.