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Inflation Jitters? Strive to Power Up Your Portfolio With the Energy Sector

 

Feeling the pinch of rising prices? Inflation can erode your purchasing power, making your hard-earned money worth less. While there’s no magic bullet, diversifying your portfolio with strategic investments can help you weather the storm. Enter the energy sector: a potential haven against inflation for savvy investors.

Here are four reasons why energy can help you beat the heat of inflation:

Demand Remains Hot: Energy is a fundamental need, powering everything from homes to industries. Regardless of economic cycles, people need energy, driving consistent demand and potentially pushing prices up alongside inflation.

Production Lags Behind: Expanding energy production takes time and investment. With demand constantly rising, even a slight supply crunch can propel prices further, potentially benefiting energy companies.

Hedging With Dividends: Many established energy companies, particularly the larger oil and gas giants, are known for generous dividend payouts. These regular income streams can help offset the erosive effects of inflation on your investment capital.

Inflation-Linked Contracts: Some energy companies, especially those in the midstream sector like pipelines and storage, have contracts linked to inflation indices. This means their revenue automatically adjusts as inflation rises, seeking to preserve their profitability and potentially benefiting investors.

Be Wary of Risks and Regulations

But just like any investment, there are risks. Energy prices can be volatile, and what goes up, sometimes goes down. Oil and natural gas prices are also impacted by global factors, such as wars, blockades or embargoes. Rapidly changing prices — up or down — can impact company valuations and investor returns.

The push for clean energy and stricter regulations can also present challenges for traditional energy sources. The regulatory landscape can change rapidly, so energy sources and processes that were in favor could be banned in short order. One way to mitigate the risk is to identify companies investing in cleaner alternatives to traditional energy.

Most importantly, patience and a long-term view are necessary habits for successful investing. The energy sector is cyclical, and navigating its ups and downs requires a long-term investment horizon to weather short-term volatility and capture potential long-term gains.

Lean on a Professional for Advice

A financial advisor can help you navigate this challenging sector and identify funds and ETFs that meet your investment goals and objectives. With guidance from a financial advisor, you can create a diversified portfolio that can help mitigate the effects of inflation, grow capital over time and deliver consistent income.

Diversification does not assure a profit or protect against loss in a declining market.

Disclosure

To determine if this Fund is an appropriate investment for you, carefully consider the Fund’s investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Fund’s prospectus, which may be obtained by calling (800) 994-0755. Please read the prospectus carefully before investing.

Westwood ETFs are distributed by Northern Lights Distributors, LLC (Member FINRA). Northern Lights Distributors and Westwood ETFs (or Westwood Holdings Group, Inc.) are separate and unaffiliated.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. No representation or warranty is made concerning the accuracy or completeness of any data compiled herein. Any statements non-factual in nature constitute only current opinion, which is subject to change. Any statements concerning financial market trends are based on current market conditions, which will fluctuate.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

Past performance is not indicative of future results. All information provided herein is for informational purposes only and is not intended to be, and should not be interpreted as, an offer, solicitation, or recommendation to buy or sell or otherwise invest in any of the securities/sectors/countries that may be mentioned.

There is no guarantee the holdings will continue to pay dividends.

This investment may not be suitable for all investors and ETFs are subject to loss of principal.

© 2024 Westwood Management Corp.

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The information contained herein represents the views of Westwood Holdings Group, Inc. at a specific point in time and is based on information believed to be reliable. No representation or warranty is made concerning the accuracy or completeness of any data compiled herein. Any statements non-factual in nature constitute only current opinion, which is subject to change. Any statements concerning financial market trends are based on current market conditions, which will fluctuate. Past performance is not indicative of future results. All information provided herein is for informational purposes only and is not intended to be, and should not be interpreted as, an offer, solicitation, or recommendation to buy or sell or otherwise invest in any of the securities/sectors/countries that may be mentioned.