Vanguard Energy ETF (VDE) - Good Time to Jump In?

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Cornflakey
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Vanguard Energy ETF (VDE) - Good Time to Jump In?

Post by Cornflakey » Thu Aug 15, 2019 7:47 pm

VDE is down to $73, approx 26% from 52-week high and almost half its $140 all time high a few years back in 2014. VDE has not been this cheap since 2009.

Realize oil is in a bear market but given this would be a buy and hold investment for the next 20+ years....

Also pays relatively juicy dividends. Seems like a no-brainer to me.

Any great reasons not to jump in? Thanks for your insights!

https://investor.vanguard.com/etf/profile/VDE

bluquark
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Re: Vanguard Energy ETF (VDE) - Good Time to Jump In?

Post by bluquark » Thu Aug 15, 2019 8:15 pm

For a counternarrative, you may be interested in this thread where an investor dislikes energy stocks so much they're considering replacing their total market fund with a fund that includes everything but energy: viewtopic.php?t=285495 . There are also generic arguments against non-total-market investment strategies in there.

wootwoot
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Re: Vanguard Energy ETF (VDE) - Good Time to Jump In?

Post by wootwoot » Thu Aug 15, 2019 8:19 pm

bluquark wrote:
Thu Aug 15, 2019 8:15 pm
For a counternarrative, you may be interested in this thread where an investor dislikes energy stocks so much they're considering replacing their total market fund with a fund that includes everything but energy: viewtopic.php?t=285495 . There are also generic arguments against non-total-market investment strategies in there.
Sounds like a great time to buy, blood is in the streets.

Silk McCue
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Re: Vanguard Energy ETF (VDE) - Good Time to Jump In?

Post by Silk McCue » Thu Aug 15, 2019 8:20 pm

It has been a historical pitiful performer based upon the link you shared.

Vanguard Total Stock Market is a buy and hold for 20 years. This fund is not.

Cheers

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tooluser
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Re: Vanguard Energy ETF (VDE) - Good Time to Jump In?

Post by tooluser » Thu Aug 15, 2019 9:58 pm

VDE is 10% of my 10-speed portfolio and is by far the biggest (and only) loser, by share price. I have to add more shares to keep it at 10%.

However, that was not the case when it was $140 a share. Back then it was a big winner, near if not at the top. I had to buy more shares of everything else to keep it at 10%.

It was recommended by Scott Burns as a proxy for commodities in general. He recommended it near the "peak oil" craze before hydraulic fracturing took off and "ruined" the market. The oil market is certainly different now.

VDE is certainly volatile.

I have no prediction for the future. Not planning on selling mine, it pays a good yield/dividend.

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Tyler Aspect
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Re: Vanguard Energy ETF (VDE) - Good Time to Jump In?

Post by Tyler Aspect » Fri Aug 16, 2019 1:31 am

Sector funds are very volatile. Stay with broadly diversified stock and bond index funds. It is never a good time to jump into a sector fund.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

lawman3966
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Re: Vanguard Energy ETF (VDE) - Good Time to Jump In?

Post by lawman3966 » Fri Aug 16, 2019 2:03 am

Cornflakey wrote:
Thu Aug 15, 2019 7:47 pm

Any great reasons not to jump in? Thanks for your insights!

https://investor.vanguard.com/etf/profile/VDE
How about this for starters: market timing fails for most people most of the time.

Second possible reason: there is no reason to believe that I, you, or anyone else on this board would know better than the sum total of market forces that placed VDE's price at its current level what the price should be instead.

92irish
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Re: Vanguard Energy ETF (VDE) - Good Time to Jump In?

Post by 92irish » Fri Aug 16, 2019 12:25 pm

Yes - it would be market timing, but I would have to agree with you that energy seems to be in a deep bear market. I am of the opinion that energy will be needed for a very long time. I must confess that I have purchased some VDE recently as a small portion of my portfolio. One thing to remember is that VDE only has domestic energy stocks and there are some really good global companies which are not included (e.g. BP, Shell, Total, as an example) that have really nice dividend yields. Those international energy majors are in the Vanguard active fund (VGENX), although it has a higher expense ratio than VDE. You always could hold some shares of the international stock ADRs which is what I have done.

asif408
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Re: Vanguard Energy ETF (VDE) - Good Time to Jump In?

Post by asif408 » Fri Aug 16, 2019 12:47 pm

92irish wrote:
Fri Aug 16, 2019 12:25 pm
Yes - it would be market timing, but I would have to agree with you that energy seems to be in a deep bear market. I am of the opinion that energy will be needed for a very long time. I must confess that I have purchased some VDE recently as a small portion of my portfolio. One thing to remember is that VDE only has domestic energy stocks and there are some really good global companies which are not included (e.g. BP, Shell, Total, as an example) that have really nice dividend yields. Those international energy majors are in the Vanguard active fund (VGENX), although it has a higher expense ratio than VDE.
+1. If you want to tilt to energy globally and don't want an active fund, you could try ETFs FILL or IXC, which are global energy funds. Energy stocks outside the US have done even worse in the last 10-15 than US energy stocks, plus you would ensure broader diversification in the energy sector. FWIW, I own FILL.

assetalloc
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Re: Vanguard Energy ETF (VDE) - Good Time to Jump In?

Post by assetalloc » Sun Aug 18, 2019 6:32 pm

Silk McCue wrote:
Thu Aug 15, 2019 8:20 pm
It has been a historical pitiful performer based upon the link you shared.

Vanguard Total Stock Market is a buy and hold for 20 years. This fund is not.

Cheers
The energy sector has definitely been acting an uncorrelated asset with the larger stock market for the last several years. There has been lots of capital loss in the oil and gas sector in the last 10+ years. Last time I got this interested in the sector was in 2007-8 before it peaked. Those were some golden years for the sector.

Fast forward 11 years, I agree that I have started to hear on CNBC "traders on their fingers to sell OIL" on any Geo-political news. If one is buying because of "blood on the street" - I am not sure if its the beginning of blood-shed or in the middle or the end.

Wearing my market timing hat, I expect the bloodshed to continue for 2019. Afterall bears on VDE need to have an awesome year too :-)

I am eyeing on FSNGX (Natural gas) which is even more targeted sector than larger energy. FSNGX hasn't seen sunlight since 2008. And everyone has stopped talking about it (except me - starting on it)

Here is an interesting video on the subject:

https://youtu.be/8mLx0cpk-fo

Topic Author
Cornflakey
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Re: Vanguard Energy ETF (VDE) - Good Time to Jump In?

Post by Cornflakey » Sun Aug 18, 2019 7:10 pm

OP here - thanks all for the thoughtful replies. I went ahead and jumped in on Weds (the -800pt day for the DJIA).

Limit order executed at $74.80 - week low was Thurs at $73.15, but I'm nor crying about jumping the gun! 😊

I take the points about market timing but I respectfully disagree - making a sector investment at a very low price to hold for the long haul does not qualify as market timing in my opinion.

Just to give a sense of my portfolio:
36, live in NJ work in NYC, income $175k last year
$186k in 401k (large cap and small mid cap indexes with Voya, maxing out with 7% employer match)
$12k in ROTH IRA ( VTSAXmax ing out, backdoor since income exceeds limits)
$116k in taxable (vanguard sector funds as a means to overweight in bearish sectors- I have never sold an investment - ever!)
$4k in employers ESPP program (5% Discount)
Owe $299k on $360k mortgage, 15yr with 2.8% rate and 12 years to completion.
Student loan paid off and no other debt.

I know BHs hate sector investing, but I am following the BH philosophy in my tax deferred accounts. Trying to take a little more active role in my very long term investing in my taxable account, but only using low cost vanguard ETFs. I like to feel like I have a little discretion in my investment decisions since most of it is just on autopilot in my retirement accounts.

I expect to be hauled over the coals, but that's where I'm at. Thanks again for all your insights - I love reading this forum.

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tooluser
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Re: Vanguard Energy ETF (VDE) - Good Time to Jump In?

Post by tooluser » Sun Aug 18, 2019 8:50 pm

Oil prices right now are ~$58 a barrel. I remember both tales of "oil will exceed $100 forever", and "oil will never be above $40 again". Nobody knows nuthin'. Best of luck to us all.

I do like cheap gas. It's hard to feel too bad if you play all ends.

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nedsaid
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Re: Vanguard Energy ETF (VDE) - Good Time to Jump In?

Post by nedsaid » Sun Aug 18, 2019 10:14 pm

Cornflakey wrote:
Thu Aug 15, 2019 7:47 pm
VDE is down to $73, approx 26% from 52-week high and almost half its $140 all time high a few years back in 2014. VDE has not been this cheap since 2009.

Realize oil is in a bear market but given this would be a buy and hold investment for the next 20+ years....

Also pays relatively juicy dividends. Seems like a no-brainer to me.

Any great reasons not to jump in? Thanks for your insights!

https://investor.vanguard.com/etf/profile/VDE
In the past, I would have been with you and jumped in with both feet. There was a cycle of low energy prices and abundant supply going to shortages and high prices and then back again. I have heard from my broker the saying that the cure for high gas prices is high gas prices. What he meant by that is high prices provided the incentive and the resources for future exploration.

Things have changed, mainly hydraulic fracking and horizontal drilling which have opened up vast reserves of oil which before were unrecoverable. This process also releases natural gas which also is now in abundance. There are large formations of the semi-porous rock in South Dakota and Texas. I was reading that the more they drill, the more they find. These formations are also in UK and in Israel and probably all over the world. The frackers are profitable when the oil prices are in the low forties now. So when oil prices start getting about $70 a barrel, the frackers start drilling again. This may have set a ceiling on the price of oil for many years to come. Not sure oil companies, even the majors, are sure fire investments any more.

There is also increased environmental risk as oil companies search in remote areas of the world and in deeper and deeper waters. We all know what happened with British Petroleum and the Gulf of Mexico.

I am a shareholder of Exxon-Mobil and have been for many years. Not sure it is going to be a great investment going forward.
A fool and his money are good for business.

Valuethinker
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Re: Vanguard Energy ETF (VDE) - Good Time to Jump In?

Post by Valuethinker » Mon Aug 19, 2019 5:30 am

nedsaid wrote:
Sun Aug 18, 2019 10:14 pm
Cornflakey wrote:
Thu Aug 15, 2019 7:47 pm
VDE is down to $73, approx 26% from 52-week high and almost half its $140 all time high a few years back in 2014. VDE has not been this cheap since 2009.

Realize oil is in a bear market but given this would be a buy and hold investment for the next 20+ years....

Also pays relatively juicy dividends. Seems like a no-brainer to me.

Any great reasons not to jump in? Thanks for your insights!

https://investor.vanguard.com/etf/profile/VDE
In the past, I would have been with you and jumped in with both feet. There was a cycle of low energy prices and abundant supply going to shortages and high prices and then back again. I have heard from my broker the saying that the cure for high gas prices is high gas prices. What he meant by that is high prices provided the incentive and the resources for future exploration.

Things have changed, mainly hydraulic fracking and horizontal drilling which have opened up vast reserves of oil which before were unrecoverable. This process also releases natural gas which also is now in abundance. There are large formations of the semi-porous rock in South Dakota and Texas. I was reading that the more they drill, the more they find. These formations are also in UK and in Israel and probably all over the world. The frackers are profitable when the oil prices are in the low forties now. So when oil prices start getting about $70 a barrel, the frackers start drilling again. This may have set a ceiling on the price of oil for many years to come. Not sure oil companies, even the majors, are sure fire investments any more.

There is also increased environmental risk as oil companies search in remote areas of the world and in deeper and deeper waters. We all know what happened with British Petroleum and the Gulf of Mexico.

I am a shareholder of Exxon-Mobil and have been for many years. Not sure it is going to be a great investment going forward.
I think Exxon-Mobil will, in a sense, self liquidate. It will pay out good dividends, do share buybacks, and acquire other oil companies.

Whether they can manage the fracking side of the business is a more difficult question. I don't know.

EOG, the old Enron Oil & Gas, is one I focus on -- after I read Bethany Hughes admirably short book on fracking (she was the one who broke the Enron story, originally). That kind of disciplined business/ financial model in an industry full of "at the edge" (and not always on the right side of that edge) industry.

There's a big question mark whether fracking can be rolled out in other countries as much as it has in the USA. One major issue is the landowners don't own the mineral rights, so there's huge local opposition in most countries. And water is often not in supply.

Fracking here (UK) seems to be mostly about gas (although oil might appear). Poland, which has a genuine need for gas and a desire to encourage domestic production, has not been successful for explorers at this point.

Basically I agree with you though:

- fracking means that if oil goes above say $60/ bl, US production rises. Oil is now more like a classic wheat farmer in ECON 101 - higher prices bring more supply relatively quickly. Spencer Dale, Chief Economist of BP, had a speech about that. It makes high cost big risk projects like Alberta tar sands or deep offshore that much more financially risky

- fracking also means North America essentially has a permanent oversupply of natural gas over any time horizon that is visible (5 years, 10 years, 20 years?). It's only a matter of whether you have the collection mechanism and the transmission pipelines (mostly those issues are in New England). The Natural Gas is not the objective of the drilling, which is for oil, but it is the byproduct

- it's too early to call an end to oil. But it's now in sight even if the timing is very uncertain - and it won't be a supply constraint that does it, it will be a civilization switching power source. It is too dense a source of energy (storage) to disappear quickly

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