- FENY invests in energy stocks, with heavy exposures to oil and gas stocks.
- The underlying return on equity is strong, but assuming reasonable profit distributions and a fairly high cost of equity, implied forward returns are likely capped at 8-10% per annum.
- The energy sector could out-perform, but volatility is likely to remain as investors struggle to price in political and regulatory headwinds.
- Given the risks involved, I do not think FENY is undervalued, and if anything it is probably overvalued if the fair cost of equity is above 10% (and I think it is, with my estimate being 12.36%).
- There are more interesting alternatives at present, for investing in the commodities space (beyond energy).
For further details see:
FENY: Energy Stocks Should Rise But Returns Are Likely Capped At 10%