Nations have risen and fallen, governments come to power and been ousted, and businesses created and destroyed, all in the quest for energy. Today we stand at another critical inflection point for the energy system. For long-term investors, navigating this unprecedented and uncertain energy landscape is critical for four key reasons:
- Energy not only accounts for 10% of the global economy but is also a crucial input into the remaining 90%. Energy prices drive key macroeconomic indicators including inflation, consumer spending, economic growth, and external balances.
- Establishing and maintaining dependable access to energy lies at the heart of many geographical fault lines. These geopolitical risks are critical for understanding sovereign risk, evaluating potential capital restrictions, and monitoring country-specific risk factors across the portfolio.
- The energy transition – the shift towards electrification and a low-carbon energy mix – creates an array of attractive investment opportunities, leads to obsolescence risk in waning energy sectors that may be over-represented in investors’ portfolios, and requires vigilance against overhyped innovations that in reality are often too distant, uneconomic or politically unfeasible.
- For investors with ESG goals, the inescapable arithmetic of global energy supply and demand means fossil fuels will remain a major source of energy supply for decades to come. Such a world requires considerable investment nuance – and a simplistic strategy that divides the world into brown villains and green heroes will not be the most effective approach to achieve either environmental or fiduciary objectives.
References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. The securities referenced may or may not be held in the portfolio at the time of publication and, if such securities are held, no representation is being made that such securities will continue to be held.
The views expressed herein are those of PGIM investment professionals at the time the comments were made, may not be reflective of their current opinions, and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute investment advice or an offer to sell or a solicitation to buy any securities mentioned herein. Neither PFI, its affiliates, nor their licensed sales professionals render tax or legal advice. Clients should consult with their attorney, accountant, and/or tax professional for advice concerning their particular situation. Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy.
Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.
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