The final quarter of the year is upon us, which means it’s time to take a look back at our pick for the Best Stocks of 2015 contest.
Our initial premise of selecting the iShares U.S. Oil and Equipment Services ETF (IEZ) was as a comeback contender in the event of a commodity rebound.
Nevertheless, the price trend of crude oil and natural gas foiled our fundamental investment premise by failing to generate sufficient upside activity.
Thus, sellers remained in the driver seat in virtually every corner of the energy sector.
With three months of the year still left, anything can happen. However, it would be surprising for oil to make a material dent in the bearish pattern of the oil services industry before 2016.
Now this certainly wasn’t the outcome that we expected when we enlisted in this race. In fact, we fully expected IEZ to be one of the top-performing ETFs of 2015 as we evaluated all of the relevant sectors and opportunities before the year began.
Nevertheless, the market continues to remind us that what we think will happen and what actually happens is far from certain.
Let’s evaluate some of the important lessons so far:
Picking stocks is difficult. As we write this post, more than half of the field is trading in the red this year. In addition, the top performer, Rave Restaurant Group (RAVE) is actually down almost 50% from its highs. That performance certainly coincides with the picture of volatility that we have experienced in 2015 and underscores the difficulty in picking niche stocks, industries and sectors.
Position size matters. With narrower focus comes a higher level of risk and also a consummate opportunity for greater reward. Any time you step outside the realm of a broad-market or multi-sector diversified fund, you should size the position to match the overall risk profile. An industry-level ETF like IEZ with 40 holdings should be categorized as a tactical holding for more aggressive portfolios. We detailed this view in our opening treatise as well.
Oversold can become more oversold. One of the reasons we chose IEZ as a long opportunity at the start of the year is because it had been devastated in 2014. However, that doesn’t mean it was a guaranteed rebound opportunity. An oversold stock or index can become even more oversold despite all technical or fundamental evidence to the contrary.
The Bottom Line
So far, 2015 has been a lesson in humility for many sectors of the market, and energy certainly wasn’t spared in that recourse. Nevertheless, this sector remains on my radar for a snapback as oil prices eventually regain their footing. We will continue to post regular updates on this sector alongside other ETF opportunities on our Investor Insights blog, as well.
David Fabian is Managing Partner and Chief Operations Officer of FMD Capital Management.
Michael Fabian is Managing Partner and Chief Investment Officer of FMD Capital Management.
To get more investor insights from FMD Capital, visit their blog.
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