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Vanguard Energy Fund (VGENX)
Old 01-06-2015, 10:45 AM   #1
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Vanguard Energy Fund (VGENX)

Any thoughts on wading into the oil pool yet? It lost about 14% in 2014, but may have some solid gain in 2015 as supplies align with demand. Any thoughts on Vanguard Energy Fund (VGENX)?
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Old 01-06-2015, 12:00 PM   #2
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I sold it in early 2014.... but I do not think it is time to buy...

The oil stocks have not yet gone down as much as oil... I think they still have a ways to go...
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Old 01-06-2015, 01:15 PM   #3
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I own some VGELX, so I took the recent ridedown, and the ride up for years, so I am standing pat. While it may be a buy now, you probably have 12-24 months to act. You can sleep on it for a while...
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Old 01-06-2015, 01:50 PM   #4
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I held 10K of VGENX in a taxable account. Had it for a year plus, and made about 1.5K between CG and dividends. After that I started a small position in my SEP. At this time I am glad it is only that.

I am also considering VDE (Vanguard Energy ETF) or XOM.
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Old 01-06-2015, 02:35 PM   #5
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I guess timing a buy is difficult. It will only take one real or contrived crisis (hurricane, war, political upheaval, etc) to push oil/energy back up 2013 levels again.
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Old 01-06-2015, 03:03 PM   #6
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I own lots of VGENX, but not greater than 5% of my portfolio. I have bought a lot more recently. Not too worried about it short term. I'm in for the long haul. I plan to hold indefinitely or until it goes WAY up and then rebalance. I think we are staying low for the foreseeable future. However, when OPEC feels fracking has significantly diminished, they will cut production and prices will rise once again.
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Old 01-06-2015, 03:17 PM   #7
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FWIW, as a former holder of VGENX, my choice is an ETF--either VDE or Ishares Domestic Oil, IYE. Both of the ETF's have slightly better performance 1,3, and 5 yr results. To me, I found Vanguard trading rules a major pain, especially if you are trying to deal with tax issues. The mutual fund is not offering an return advantage and carries with it the inability to trade during the day and make new investments if you have sold the fund in the last 90 days. You also do not get hit with big end of year distributions.
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Old 01-09-2015, 06:22 AM   #8
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Another advantage to an ETF is that most have options. My choice would be XLE since it's options are quite liquid. This gives you the ability to write calls against your position to increase income (or lower your basis).
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Energy ETFs/Mutual Funds are an excellent long term play
Old 01-09-2015, 09:21 AM   #9
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Energy ETFs/Mutual Funds are an excellent long term play

I had not owned any energy funds/ETFs in my portfolio until just recently. With oil in the low 50s, it has not been that low since 2009. We all know that oil shot back up, as did the stock market. There is no way oil will still be this low 12 months from now. Oil may go a little lower, but who cares if you're holding this for the long term. Energy stocks have taken a hammering lately (down 30-50%) and you want to invest when there's blood in the streets. In the past couple of weeks I bought Fidelity's Energy ETF, FENY, Fidelity Select Energy Services, and Vanguard's Energy ETF, VDE. A few world conflicts and a decision by OPEC to cut production will send these shares much higher. Also, lower prices will spur greater demand thus shifting the current state of supply being higher than demand.
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Old 01-09-2015, 09:27 AM   #10
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Owned it for years (well, VGELX), and buying recently to rebalance.

For me it's simply following my rebalancing rules, but even as a market timing exercise goes I think it's a good time to buy. I remember thinking throughout 2008 "Sure, it may not be the bottom, but in 5-10 years looking back all these price points will seem cheap". My 2c.
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Old 01-09-2015, 10:16 PM   #11
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I was listening to a podcast out of Australia yesterday discussing energy going forward, particularly coal and electricity generation. They are predicting major energy storage development (batteries at the commercial level) and the use of wind and solar generation. These changes will be driven by an ever decreasing cost of wind and solar generation... completely market driven. Electrical utilities will be left with providing distribution systems.

No discussion of natural gas power plants or the cost of oil.

No discussion of power generation in severe northern climates.


Didn't China enter into an oil market agreement with China last year? I wonder if they are trying to re-negotiate the price.
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Old 01-11-2015, 09:50 PM   #12
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I've been looking at VNR as well, I think this year is time to buy plus it has awesome returns. I've got a limit order if it hits 13.50 but I'm nervous of losing the opportunity to buy if it spikes back up. Gasoline prices have been low lately and I'm not sure how long it'll last.
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Old 01-13-2015, 06:16 PM   #13
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I've been looking at VNR as well, I think this year is time to buy plus it has awesome returns. I've got a limit order if it hits 13.50 but I'm nervous of losing the opportunity to buy if it spikes back up. Gasoline prices have been low lately and I'm not sure how long it'll last.
Interesting that this would be a first post for you which caused me to do a little research on VNR that fell again today 6 percent.

This review uncovered issues that were very interesting on hedging activities that make me wonder how many of the other companies have hedged the same way VNR did. In essence VNR hedged a portion of their production but collared another portion of their production through the use of selling a call and buying a put and then the selling of a put at a lower price around 74 per barrel for oil for VNR.

The collar is effective to give a delivered price per barrel of 94 dollars per barrel but only as long as oil stayed above 74, with every drop in oil below 74 it drops their hedged position by an equal dollar, so that at 45 they have a $29 loss of their hedged position to realize $65 per barrel for 2015 on their hedged position which is about 75 per cent of production I believe after that they would need to establish new hedges which at today's prices means they could just close up shop.

Management had stated in October that they would be able to maintain Distributable Cash Flow at 1.0 for 2015 to distributions but that was when management said lowest possible price expected for 2015 was $70 a barrel, which is right about where their collars become ineffective. I would imagine with oil at $45 there is quite a bit of excrement of bricks in the corporate board room. They I am sure were right there with Boone Pickens on what oil prices would do.

I think it is likely that the oil ministers in OPEC have had finance guys look at these financials of companies like VNR and realize at $40 per barrel these guys and probably if VNR is running these collars so are a lot of other "sophisticated" hedging programs which is going to crush a lot of production through the first quarter of 2015. These companies are going to be breaking debt covenants, which glancing at what VNR said in their 3rd Qtr 10 Q filing:
Quote:
The prices we receive for production depend on many factors outside our control. In addition, the potential exists that if commodity prices decline to a certain level, the borrowing base for our Reserve-Based Credit Facility can be decreased at the borrowing base redetermination date to an amount lower than the amount of debt currently outstanding and, because it would be uneconomical, production could decline to levels below our hedged volumes.
I think right now they are in a position they never thought possible and are daily just hoping the price of oil goes back up and rescues them as the 1-2 percent daily drops in oil is just killing them. I would estimate they will have at current price of oil and natural gas about .40 in cash flow to distribute in 2015 but furthermore with cutting of maintenance capital to preserve cash will only created unrecorded repair liabilities which will occur in the future as the lack of maintenance capital will increase failing equipment, but that is probably a 2016 problem assuming oil does not recover to over $70 per barrell.

Looking at this you can see why the oil price keeps going down, there must be many producers locking in sales at current rates and selling oil now into the market to prevent even larger losses. Wonder where capitulation will be......
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Old 01-13-2015, 11:34 PM   #14
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13.93 today, the historic low is 5.20 in Nov 2008. They survived a few bubbles before so I don't think they'll go bankrupt, thought current prices are quite low.

First time following a gas market dip so closely, they have good dividends too so I'm hoping for the best possible price to buy (placed a limit order at $8) and a peak back at some point in prices for some nice dividends.

Thanks for your post, it offered some depth I hadn't thought about.
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Old 01-14-2015, 08:57 AM   #15
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There is no way oil will still be this low 12 months from now.

A few world conflicts and a decision by OPEC to cut production will send these shares much higher.
Maybe the Saudis have learned that OPEC and non-OPEC countries cheat by not cutting production, and those who play along end up losing share (and margin) for their efforts. It's happened time and time again. The Saudis can go lower than anyone else, so they keep producing to hold their share and wait for higher cost production sources to collapse. And IF the US ever had any influence on OPEC, it's probably diminished now, more than ever they will act in their own interests.

Oil Spread Shows Saudi Shale Strategy Working: Chart of the Day - Bloomberg

Oil Spread Shows Saudi Shale Strategy Working: Chart of the Day - Bloomberg
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Old 01-14-2015, 03:36 PM   #16
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Can anyone explain why diesel prices aren't dropping?
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Old 01-14-2015, 03:43 PM   #17
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Can anyone explain why diesel prices aren't dropping?
Diesel prices are dropping, just not as fast or as much as gasoline prices. One big reason is the US is a major exporter of diesel. We export 10X as much as 10 years ago. Supply and demand...
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