Fossilized Asset Allocation Still Mis-Pricing Energy And Risk

Summary

  • All energy sectors are still treated alike, dominated by fossil fuels. Energy assets based on commodities: coal, oil, gas, uranium are confused and conflated with energy technology stocks.
  • Energy technology stocks in solar, wind, batteries, efficiency, hydro, ocean-based and other emerging technologies are drowned out in this oil-dominated model.
  • Oil price volatility will continue as a wild card and presents an opportunity to address today’s massive mispricing of energy and risk.
  • Disaggregation and granulation of data is needed while splitting fossilized asset allocation buckets into newer energy commodities and energy technology classifications.

As I wrote in 2008 in “Updating Fossilized Asset-Allocation Classes,” all energy sectors are still treated alike, dominated by fossil fuels. This means that energy assets based on commodities: coal, oil, gas, uranium are confused and conflated with energy technology stocks in solar, wind, batteries, efficiency, hydro, ocean-based and other emerging technologies which are drowned out in this oil-dominated model. Even as oil prices fluctuate wildly, dipping below $50 in January 2015, this commodity price volatility affects both other commodities’ asset values as well as highly leveraged producers and refiners, since 16% of junk bonds are energy-related. While macroeconomic effects are very real and wildly divergent between countries and sectors, this focus is on data, models and metrics. Oil prices primarily affect and misprice the energy technology players whose sunk or securitized capital costs are now producing fuel from the sun’s daily photons which are free.

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