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The rotation of growth investors out of oil and gas equities as exhibited by the Range Resources example is emblematic of a larger trend that we see in nearly all E&P and oilfield services companies.
The energy sector has been underperforming the broader market as measured by the S&P 500 index for the past three years by non-trivial amounts.
As investors navigate these turbulent waters, we believe they should be mindful of current investor sentiment and how it impacts E&P and energy-related equities.
One touchstone of how oil executives feel about the market is their Letter to Shareholders found in their annual reports.
The tug-of-war between bulls and bears continues, as increases in the rig count drive supply concerns while drops in crude oil inventories give the bears something to cheer about.
Neither side, however, has enough critical mass to drive oil prices convincingly.
As of April 5, 2018, these growth-oriented investors held only 26% of shares held by active investment styles, almost half as much as four years ago.
Growth investors have rotated out of oil and gas equities and have been replaced by value-oriented styles, as exhibited by Range Resources Corporation.
Valuation disconnects have attracted activist investors. There are some signs the oil markets have returned to fundamentals, and investors are looking for signs of an upturn.
Filling the gap have been Value and Alternative investors, who now own 71% of RRC, up from 51% at year-end 2014.
Based on our analyses, RRC is not an outlier and that the shareholder compositions of other energy names follow a similar pattern.
Many larger banks are consolidating oil and gas equity research into cyclicals and materials, as trading declines, commissions drop, and investors shun energy IPOs.