Portfolio strategy update: tightening our focus on energy

Genevieve Signoret

(Hay una versión en español de este artículo aquí.)

We’ve revised our portfolio strategies for clients whose fiscal residence is Mexico.

Overweighting global oil and gas exploration and production

The move

For all such clients, we’re opening a new overweight equity position in global oil and gas exploration and production. This will add to existing equity overweights in Mexico, developed market energy, U.S. communication services, and U.S. energy.

The motive

Our quantitative models are signaling that, owing to its current attractive valuation and strong upward momentum, global oil and gas exploration and production equity is a Strong Buy.

Tightening our infrastructure focus on energy

The move

For clients whose portfolios contain liquid alternative assets, we’re closing our position in global infrastructure equity and opening a new one in U.S. energy Master Limited Partnerships (MLPs).

The motive

Roughly speaking, an MLP is the U.S. version of a Mexican Energy and Infrastructure Investment Trust, or FIBRA-E.

Global infrastructure encompasses a broad range of subsectors, of which U.S. energy MLPs is just one.

In U.S. dollar terms, with a total return so far this year of +1.8%, our position in global infrastructure has  outperformed S&P 500 Index (–4.5%) funds. But deeper analysis reveals that a large part of this performance is being driven by energy infrastructure in general and U.S. energy MLPs in particular. This year alone, the U.S. MLP fund we have chosen for allocating to this subsector has produced a U.S. dollar total return of +22.3%.

Moreover, our quantitative models are signaling that the U.S. energy MLP valuations are currently more attractive than those of broad global infrastructure, and that they’re exhibiting upward momentum that is stronger in the sense of more likely to be sustained.

For these reasons, we’ve decided to focus our allocation to global infrastructure on U.S. energy MLPs.

Tax efficiency

As always, to execute our new asset allocation, we’ve chosen exchange traded funds that meet our criteria not only for size, liquidity, expense ratio, management quality, and track record, but also for tax efficiency—in this case, for investors whose tax jurisdiction is Mexico.