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Oil/Gas and the FTSE All share

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OhNoNotimAgain
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Re: Oil/Gas and the FTSE All share

#138927

Postby OhNoNotimAgain » May 14th, 2018, 8:46 am

Two things to bear in mind.

The UN predicts the the global population will grow from 7 billion to 11 billion by 2100 but the number of children wil remain at 2 billion. In other works the population will age and it will want heat, transport and consumer goods, many made of plastic.

Secondly, if Aramco succeeds in listing on the LSE it will dwarf every other company. Depending on how thw weight is calculated it will almost certainly be the biggest individual company on the exchange and probably the biggest dividend payer.

I would not write off the oil and gas sector just yet.

colin
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Re: Oil/Gas and the FTSE All share

#138946

Postby colin » May 14th, 2018, 10:45 am

Yes wise words Harieseldon58. I guess the essential nature of Black Swans is their unpredictability so as you say diversify and stop worrying.
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colin
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Re: Oil/Gas and the FTSE All share

#138947

Postby colin » May 14th, 2018, 10:49 am

if Aramco succeeds in listing on the LSE it will dwarf every other company.


If that comes to pass I am definitely going to get rid of my exposure to FTSE 100, if the Saudis don't want their oil any more why should I ?

hiriskpaul
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Re: Oil/Gas and the FTSE All share

#138958

Postby hiriskpaul » May 14th, 2018, 11:51 am

colin wrote:
if Aramco succeeds in listing on the LSE it will dwarf every other company.


If that comes to pass I am definitely going to get rid of my exposure to FTSE 100, if the Saudis don't want their oil any more why should I ?

As far as I am aware the plan was only to list 5% of Aramco, so the market cap would "only" be around £50B, perhaps £75B on a very optimistic valuation. I don't think the Saudis are particularly keen on listing any of it, but are doing so to raise capital in order to reform their economy.

Holding a large allocation of FTSE100 companies is foolhardy anyway IMHO. Far better to globally diversify and cap UK companies at say 25% at most. I currently cap the FTSE 350 to 10% of my global equities portfolio and overweight FTSE 250.

OhNoNotimAgain
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Re: Oil/Gas and the FTSE All share

#138972

Postby OhNoNotimAgain » May 14th, 2018, 1:04 pm

hiriskpaul wrote:
colin wrote:
if Aramco succeeds in listing on the LSE it will dwarf every other company.


If that comes to pass I am definitely going to get rid of my exposure to FTSE 100, if the Saudis don't want their oil any more why should I ?

As far as I am aware the plan was only to list 5% of Aramco, so the market cap would "only" be around £50B, perhaps £75B on a very optimistic valuation. I don't think the Saudis are particularly keen on listing any of it, but are doing so to raise capital in order to reform their economy.

Holding a large allocation of FTSE100 companies is foolhardy anyway IMHO. Far better to globally diversify and cap UK companies at say 25% at most. I currently cap the FTSE 350 to 10% of my global equities portfolio and overweight FTSE 250.


That sounds like you are underweighting cash flow and overweighting growth.

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Re: Oil/Gas and the FTSE All share

#138976

Postby StepOne » May 14th, 2018, 1:21 pm

Thinking about the OP, the only way for share prices to fall is through selling, or dividends being paid out. So if the market caps of the big oil companies are falling, then investors must be selling. The proceeds from these sales will be re-invested somewhere, and I expect mainly back into the stock market if people are sticking to current asset allocations. Therefore market cap of other companies gets pushed up. So the index values shouldn't be affected by a drop in value of oil companies.

OhNoNotimAgain
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Re: Oil/Gas and the FTSE All share

#139014

Postby OhNoNotimAgain » May 14th, 2018, 4:25 pm

StepOne wrote:Thinking about the OP, the only way for share prices to fall is through selling, or dividends being paid out. So if the market caps of the big oil companies are falling, then investors must be selling. The proceeds from these sales will be re-invested somewhere, and I expect mainly back into the stock market if people are sticking to current asset allocations. Therefore market cap of other companies gets pushed up. So the index values shouldn't be affected by a drop in value of oil companies.


I am trying to sell my car right now. The valuation is falling but no one has bought it yet.

Market makers mark prices up or down depending on their book and their sense of where prices are going. You don't need to trade to make a quote.

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Re: Oil/Gas and the FTSE All share

#139057

Postby GeoffF100 » May 14th, 2018, 8:12 pm

StepOne wrote:Thinking about the OP, the only way for share prices to fall is through selling, or dividends being paid out. So if the market caps of the big oil companies are falling, then investors must be selling. The proceeds from these sales will be re-invested somewhere, and I expect mainly back into the stock market if people are sticking to current asset allocations. Therefore market cap of other companies gets pushed up. So the index values shouldn't be affected by a drop in value of oil companies.

If someone sells something, someone else buys it from them. The buyers money comes from somewhere, perhaps from the sale of another share, perhaps on another market. The sellers money goes somewhere, perhaps to buy another share, perhaps on another market.

The UK market is about 6% of the world market. The UK market has a heavy concentration in a few shares in a few sectors. The world market is much better diversified.

There is a case for some UK bias. UK shares do not have withholding tax. Historically, some UK bias reduced portfolio volatility. Unfortunately, the degree of UK bias that minimised volatility depends on the time period chosen.

Vanguard has 25% UK in both their Lifestrategy and their Target Retirement funds. Other popular funds just have the market weighting, e.g.:

https://www.trustnet.com/factsheets/t/f ... -trust-ord

The UK market is cheap relative to most other developed markets by a number of measures, but has a lot of political risk from Brexit and Corbyn.

OhNoNotimAgain
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Re: Oil/Gas and the FTSE All share

#139125

Postby OhNoNotimAgain » May 15th, 2018, 9:21 am

GeoffF100 wrote:
StepOne wrote:Thinking about the OP, the only way for share prices to fall is through selling, or dividends being paid out. So if the market caps of the big oil companies are falling, then investors must be selling. The proceeds from these sales will be re-invested somewhere, and I expect mainly back into the stock market if people are sticking to current asset allocations. Therefore market cap of other companies gets pushed up. So the index values shouldn't be affected by a drop in value of oil companies.

If someone sells something, someone else buys it from them. The buyers money comes from somewhere, perhaps from the sale of another share, perhaps on another market. The sellers money goes somewhere, perhaps to buy another share, perhaps on another market.

The UK market is about 6% of the world market. The UK market has a heavy concentration in a few shares in a few sectors. The world market is much better diversified.

There is a case for some UK bias. UK shares do not have withholding tax. Historically, some UK bias reduced portfolio volatility. Unfortunately, the degree of UK bias that minimised volatility depends on the time period chosen.

Vanguard has 25% UK in both their Lifestrategy and their Target Retirement funds. Other popular funds just have the market weighting, e.g.:

https://www.trustnet.com/factsheets/t/f ... -trust-ord

The UK market is cheap relative to most other developed markets by a number of measures, but has a lot of political risk from Brexit and Corbyn.


Whereas Brexit has no political risk for Europe, the USA is a stable beacon on rational politics, emerging markets are not concerned by rising US interest rates and the Middle East is sorted.

GeoffF100
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Re: Oil/Gas and the FTSE All share

#139167

Postby GeoffF100 » May 15th, 2018, 12:08 pm

OhNoNotimAgain wrote:Whereas Brexit has no political risk for Europe, the USA is a stable beacon on rational politics, emerging markets are not concerned by rising US interest rates and the Middle East is sorted.

We do not know which situations will work out well or badly, so it makes sense to spread our risk.

Bubblesofearth
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Re: Oil/Gas and the FTSE All share

#139492

Postby Bubblesofearth » May 17th, 2018, 7:55 am

colin wrote:About 12% by value of all share index trackers are invested in carbon producing energy companies. I assume that the value of these companies will fall over the coming years as the world moves to renewable energy sources. But does this mean the value of the all share index will take a hit, or will the companies which are destined to supply our need for cleaner energy take the place of the traditional energy companies in the index meaning no overall loss of value to all-share investors?
As a matter of interest a sector breakdown of the all-share from 2011 gave the proportion of oil/gas companies as 17%.
Just a discussion point.


Didn't we kind of do this with the banks already? FTSE seems to have done just fine since 2008.

colin
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Re: Oil/Gas and the FTSE All share

#139506

Postby colin » May 17th, 2018, 8:41 am

Didn't we kind of do this with the banks already?

Not really analogous, the banks have or can be expected to recover their value , the value of oil left in the ground will cease to have anything like as much value, whether something else will increase in value to compensate I have no idea.

colin
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Re: Oil/Gas and the FTSE All share

#139590

Postby colin » May 17th, 2018, 3:09 pm

Or to be more accurate the banks recovered after being bailed out by tax payers because they had to be, that won't be the case with oil companies.

Bubblesofearth
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Re: Oil/Gas and the FTSE All share

#139664

Postby Bubblesofearth » May 17th, 2018, 6:30 pm

colin wrote:
Didn't we kind of do this with the banks already?

Not really analogous, the banks have or can be expected to recover their value


Really? You should check out how much someone invested in RBS or Lloyds pre-financial crash would have today. Remember to account for all equity dilutions/rights etc.

colin
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Re: Oil/Gas and the FTSE All share

#139697

Postby colin » May 17th, 2018, 8:45 pm

can be expected to recover their value


...One day... if no carbon capture technology emerges it's unlikely oil will ever recover it's value.

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Re: Oil/Gas and the FTSE All share

#139767

Postby Bubblesofearth » May 18th, 2018, 8:51 am

colin wrote:
can be expected to recover their value


...One day... if no carbon capture technology emerges it's unlikely oil will ever recover it's value.


If you lose 80-90% of your money it's fanciful to say that one day it might recover. It might, it might not, but the fact is that your capital is 10-20% of what it was and that banks are no more likely to recover their previous highs than any other share is likely to go up 5 or 10-fold.

Oil will eventually become uneconomic to extract but that doesn't mean shares in BP and RDS will go to zero. They have ample time and resources to diversify activities. I actually think it unlikely the big oil companies will fare as badly as the banks did.

BoE

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Re: Oil/Gas and the FTSE All share

#139781

Postby GeoffF100 » May 18th, 2018, 10:06 am

Carbon capture is irrelevant here. Nobody is seriously interested in it, and it is not a solution anyway. People just want to extract oil and burn it.


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