Many have asked me what the effects on the market will be from the Russia-Ukraine situation. I certainly empathize on the human side and hope for a safe, satisfactory resolution for all, but the reality is that from an investing perspective, it shouldn’t matter over the longer term. Nobody has a crystal ball regarding geopolitical, or really any, events. In recognition of that we try to search for promising long-term trends, determine which companies may benefit most, and buy stock in those companies when we think it’s attractively priced, regardless of whether the price may go up or down tomorrow. We are not market timers; typically we remain invested in the stocks that we own for years. We are also not concentrated investors; we manage a highly diversified portfolio. I’ve been in the asset management business for decades. In my experience, this is the best way to dampen short-term volatility.
I don’t want it to seem like I’m skirting on commenting, however, so here is one perspective. Russia supplied 30% of the natural gas consumed in Europe during 2013,1 and the headlines are shining a light on that fact. However, it isn’t news to us. For some years, Western Europe has wanted to reduce its dependency on Russian gas, turning to places like Turkey, the Middle East and the Americas instead. As long-term equity investors, these are the kinds of trends we try to think through.
We have long been of the opinion that gas supplies to Western Europe from most of those mentioned areas would increase, as infrastructure development would permit. Those supplies must arrive by sea, and sea-borne natural gas must be liquefied and later reconverted to gas at an onshore terminal. Participants in that value chain—suppliers, equipment and service providers to them, transporters, storage operators, converters and users—all stand to benefit. We have looked for those participants with sustainable pricing power and, when valuations were appropriate, added them to the portfolio over the past few years.
We have roughly 5% of the portfolio invested in such companies. We have not overly committed the portfolio to them, any more than we would commit our portfolio to any single trend or potential outcome. In our opinion, we have enough of our portfolio invested in these companies to benefit from the long-term value they may create. But we also do not have enough invested in them for their short-term price movements to make our portfolio unacceptably volatile.
We don’t have a crystal ball and we try to invest so that we don’t need one.
1Source: U.S. Energy Information Administration, 3/14/14.
Diversification does not guarantee profit or protect against loss.
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These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the open of business on the publication date, and are subject to change based on subsequent developments.