Cushing Renaissance Fund: Energy Has Had Its Renaissance, Now Its Investors Will Have Theirs

Harrison Schwartz profile picture
Harrison Schwartz
13.39K Followers

Summary

  • Evidence suggests that energy commodity demand will be higher than supply over the next few years.
  • Crude oil prices have already risen a bit over the past few months and I expect continued increases in 2020.
  • A rise in prices will bring much needed profits to energy producers and related industries.
  • The closed-end-fund SZC has generally outperformed its passive peers and I believe it is a superior way for passive investors to gain exposure to the next energy bull-market.
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(Pexels)

Over the past decade, the United States has gone through an energy renaissance. Crude oil production has increased by over 120% and the country has gone from one of the most energy dependent to energy dominant. The power of OPEC has been decimated as the U.S. is now the world's largest energy producer.

Despite these vast gains, investors who have helped make this happen have not been rewarded. In fact, almost all energy investments are far below their 2010 price. Just look at the Energy Sector ETF (XLE) vs. the S&P 500:

ChartData by YCharts

After years of negative returns, many investors have given up on the energy sector exactly when it may offer the best returns. Energy production growth is likely to slow dramatically over coming years which will likely bring oil prices well over cost of production levels.

Valuations for energy producers are extremely low by historical standards and MLP's as well as corporate energy bonds pay extremely high dividends. I'd personally bet that energy will be one of the best performing sectors over coming years.

As I'll explain, The Cushing Renaissance Fund (SZC) appears to be one of the easiest ways investors can capitalize on this shift.

The Case for Crude

Before we dig into the fund, we must consider energy commodity prices as that is the primary determinant of any energy investment's performance.

As you can see below, the falling U.S. rig count may be beginning to slow production growth and boost prices:

ChartData by YCharts

I realize there is a lot going on in this chart, so let's break it down. First, we can see that the U.S. rig count generally tracks the price of oil. Also, when the rig count falls, production growth typically follows. This has not been true in 2019 since producers have been

ChartData by YCharts

ChartData by YCharts

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This article was written by

Harrison Schwartz profile picture
13.39K Followers
Harrison is a financial analyst who has been writing on Seeking Alpha since 2018 and has closely followed the market for over a decade. He has professional experience in the private equity, real estate, and economic research industry. Harrison also has an academic background in financial econometrics, economic forecasting, and global monetary economics.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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