OTW #58: Best country for retirement, Inflation hedge, Another energy acquisition, and more.
Important financial stories to check out over the weekend
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1. The acquisition train keeps rolling.
Energy sector acquisitions are continuing to pile up. Last week, I wrote about Diamondback Energy buying Endeavor Energy Resources.
Now, Chord Energy Corp. (CHRD) is acquiring Enerplus Corp. (ERF) for $3.7 billion in stock and cash. This will make the combined company a leading producer in the Bakken shale formation of the northern U.S. plains.
Antagonist’s take
This deal is especially noteworthy because ERF is one of the small-cap energy stocks we hold in our Blend Portfolio. The stock jumped after the news was announced.
If you’re a long-time Antagonist reader, you know that I predicted this rise in acquisitions a year ago. That’s why I encouraged Premium Members to buy shares of smaller companies like ERF.
Here’s an excerpt:
When you compare the amount of natural gas and oil that smaller companies have in relation to the size of their market cap, they become prime targets for acquisition.
Think it from the perspective of the oil majors like ExxonMobil and Chevron.
It’s already extremely difficult and expensive to explore and find new assets/reserves. When you factor in the negative sentiment from politicians, the general public, and banks, you have a regulatory nightmare on your hands as well.
Since that’s the case, why even bother with exploration?
It’s much easier and cheaper to buy a smaller company that has tremendous reserves relative to its market cap.
This excerpt from Bloomberg is also spot on (emphasis added):
Oil executives are pushing to build out their portfolios with future drilling sites and shore up cash flows. Last week, Diamondback Energy Inc. agreed to buy fellow Texas driller Endeavor Energy Resources LP in a $26 billion deal, topping off a year of roughly $250 billion in US oil and natural gas deals that have consolidated a fractured collection of wildcatters into larger corporations.
Given how much strategic sense this makes for the oil majors, I expect we’ll continue to see more acquisitions throughout the year.
2. Commodities as an inflation hedge.
offered helpful insights into how to hedge against inflation. Here’s an excerpt from his article:Commodities are generally considered a good inflation hedge for a few reasons. First and foremost is the fact that commodities go into just about every physical thing that would be used in the calculation for inflation. Commodity prices don’t directly show up in the calculation of the CPI index, but their influence is everywhere.
[The following visual is] a snapshot of how inflation is calculated in the United States.
What goes into housing? Lumber, steel, copper and other materials. Transportation? Industrial metals, oil and rubber. Food & beverages? Corn, wheat, soybeans, etc.
If the prices of these items are rising, it makes sense that the components that go into their production are going up as well. If you add exposure to these commodities in your portfolio, either through futures contracts, an investment fund or by some other means, it should, in theory, protect you to some degree from inflation.
Antagonist’s take
As Gayed said, the theory that commodity investments will rise alongside inflation makes sense. As he has also said, however, the effectiveness of commodities as a hedge can vary.
Much depends on the type of commodity, the time period analyzed, and the specific measure of inflation used. Like any investment, the broad category of “commodity” isn’t a one-size-fits-all solution either.
Before you invest commodities, consider these factors:
Historical performance: Historically, certain commodities have shown a tendency to appreciate during periods of high inflation. Gold, for example, is often cited as a classic hedge against inflation. But not all commodities behave the same way, and their performance can be influenced by a variety of factors beyond inflation, such as supply and demand dynamics, geopolitical events, and changes in currency values.
Volatility: Commodities can be highly volatile, and their prices can fluctuate widely over short periods. This volatility can introduce significant risk into a portfolio, potentially offsetting the benefits of using commodities as an inflation hedge.
Direct vs. indirect investment: There’s a difference between investing directly in physical commodities and investing in commodity stocks (companies involved in the production or distribution of commodities). While direct investment in commodities might offer a more “pure” hedge against inflation, commodity stocks introduce additional factors, such as company performance, sector trends, and market sentiment, all of which can affect returns.
Specific commodities to consider
In our Blend Portfolio, I’ve recommended specific commodities rather than a single, catch-all commodities fund.
Those recommendations have been based on supply/demand dynamics, geopolitics, and industry trends.
All our commodity holdings are also either individual stocks or ETFs as opposed to futures contracts. The latter is more complex and riskier than what most retail investors are looking for. Commodity stocks and ETFs, however, are simple to buy through just about any brokerage.
If you’ve never consider investing in commodities, I encourage you to look into them. The right investments can provide you with portfolio diversification and risk protection. They also have the potential for outsized gains.
For specific ideas, try out a Premium Membership to get access to the Antagonist Blend Portfolio (and more).
3. Best countries for retirement.
Visual Capitalist and Natixis analyzed the best countries for retirement based on four categories:
Health
Quality of life
Material wellbeing
Finances in retirement
“Norway ranks first as the best country for retirement in this study, helped by top scores in health and material well-being.”
A summary of the results is below, and you can read the full details here.
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Last thing...
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Thank you for reading, and have a great weekend!
Jason Milton
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