James Alexander Booth
James Alexander Booth
United Kingdom
4mo
Edited
Hello Copiers and Followers, We are increasing our exposure to oil and energy stocks by at least 10% of the overall portfolio. This deliberate move creates a powerful hedge against a protracted conflict in the Middle East, while simultaneously positioning us to capture significant upside from rising oil prices. The catalyst is clear and immediate. Iran has effectively closed the Strait of Hormuz — the chokepoint carrying ~20% of global oil supply — with tanker traffic down 80-90% in recent days. Multiple commercial vessels have already been damaged or abandoned in the Gulf, and shipping majors have suspended operations. Oil prices have responded sharply: Brent crude is now trading above $80–82 per barrel (with risk premiums of $10–18 added), and analysts warn of $100+ levels if the disruption persists even moderately. This allocation directly protects the portfolio. A prolonged closure would trigger a notable spike in energy costs — historically, similar disruptions have driven 20–50%+ oil price surges in short order. Our energy overweight acts as a natural insurance policy. Within this bucket, we are particularly enthusiastic about Canadian Natural Resources Limited (CNQ) and other high-quality energy names. CNQ stands out as a superb bet: it is one of the world’s largest oil-sands producers with massive, long-life reserves, improving pipeline access (via Trans Mountain expansion) that narrows heavy-oil differentials, and strong free-cash-flow generation even at moderate prices. In a $80–100+ oil environment, its margins expand dramatically. We are also broadly bullish on the energy sector for a structural reason: US shale oil production is showing signs of topping out. Our overarching goal is an “each-way bet” — a position that delivers strong performance whether the conflict resolves quickly or drags on: If the war ends swiftly (via ceasefire or diplomacy, our base-case probability ~45–55% within 6–12 months): Energy stocks still deliver solid returns from the initial price spike and subsequent inventory rebuild, while the rest of the portfolio benefits from de-risking and lower volatility. If the conflict continues (mutual exhaustion or Iranian asymmetric pressure, ~25–30% probability): Oil prices stay elevated for months, driving outsized gains in our energy holdings that more than offset any broader market softness. Wars are easy to start but notoriously difficult to end. Markets currently appear to underprice the risk of a drawn-out scenario — many investors assume a rapid de-escalation and a quick return to $60–70 oil. I do not share that complacency. By adding this targeted 10%+ energy sleeve now, we are ensuring the portfolio is not only protected but actively positioned to thrive in either outcome. This is prudent risk management combined with opportunistic alpha generation. We will continue to monitor developments daily (Strait traffic, diplomatic signals, and price action) and adjust as needed. Managing risk in times of great uncertainty is key to protecting investors and achieving satisfactory returns, rather than taking major bets. This is my key thought at the moment. A pivot to a more aggressive positioning will be taken when opportunities arise. Kind regards, Jim
Not investment advice. The author may have financial interests in the mentioned instruments.
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