Cavanal Hill World Energy Fund Quarterly Commentary
Morningstar Star Rating
As of December 31, 2024
Overall morningstar rating out of 67 OE US Equity Energy (for the overall period, Institutional Shares.)
Market Overview
Oil prices, as measured by Brent crude, rose about 4% during the quarter, as the price of oil stabilized around OPEC+’s careful management of supply despite tepid demand from China, whose economy has struggled to emerge with the growth it had before the COVID pandemic.
Saudi Arabia and OPEC+ have been voluntarily cutting production to keep prices higher than they might otherwise be. With several million barrels per day of spare capacity, and a new U.S. presidency committed to “drill baby, drill,” we are not expecting a breakout above the current range of oil prices. We still believe that if OPEC+ holds together, it could maintain Brent crude in the $70 to $90 per barrel range. However, a downside break for oil prices is possible. Optimism around U.S. demand could be a positive for oil markets even as Europe experiences a noticeable slowdown.
Natural gas prices rebounded by 24% during the quarter but remain below $4 per million Btus(MMBtu). Liquefied natural gas (LNG) facilities under construction are starting to come online, and demand being pulled to Europe is helping to support prices. Markets are well supplied as inventories approach normal with winter demand increasing. We still view LNG as a catalyst to drive prices above $4 per MMBtu, but that may be more likely to occur late in 2025 or in 2026.
Electricity demand has been fl at for the past 15 years, with the only real change in electricity generation being a shift from coal to natural gas as well as wind and solar. We anticipate an inflection in demand driven by artificial intelligence. We think this could last years, and we’re investing in electric grid supply companies as well as nuclear technology as we believe that’s an area of investment that will be needed to meet the objectives of clean and stable power.
How are you positioning the Fund?
We reduced our investment in oil-focused exploration companies and oilfield service companies. Among fossil fuel companies, we continue to see the greatest opportunity in both exploration and production (E&P) and midstream companies focused primarily on natural gas. LNG is coming into focus and Europe is a likely customer for US natural gas. We see demand from data centers and LNG increasing significantly over the next three to five years.
We remained focused on growing demand for electricity globally as a result of artificial intelligence (AI), electric vehicles (EVs), and cryptocurrency. Demand for electricity in the U.S. has been roughly fl at for 15 years, but we see these mega-trends driving demand much higher. We maintain a significant position in companies that provide electrical production and grid-related equipment. Nuclear power is a potential beneficiary of increased demand for clean electricity. We own shares in uranium production companies and in those that manufacture nuclear reactors for small applications. Although we’re not significantly invested in solar or wind, we continue to look for opportunities in those areas.
Why should investors consider investing in this fund?
Access to cheap energy remains the lifeblood of economic development. Emerging markets continue to seek the most economical sources of energy so as to improve their standard of living. Developed nations are grappling with the increased power demand from EVs and AI while investing in technologies to reduce greenhouse gas emissions.
Disclosures
An investor should consider a fund’s investment objectives, risks and charges and expenses carefully before investing or sending money.
This and other important information about an investment company can be found in the fund’s prospectus. To obtain a Cavanal Hill Funds prospectus or summary prospectus, please call 800-762-7085 or visit us at www.cavanalhillfunds.com. Please read it carefully before investing.
Cavanal Hill Investment Management, Inc. is an SEC-registered investment adviser and a wholly-owned subsidiary of BOK Financial Corporation, a financial holding company (“BOKF”). BOKF, NA serves as the custodian for the Cavanal Hill Funds. Cavanal Hill Investment Management, Inc. provides investment advice, administration and other services for the Funds and receives a fee for providing such services as fully described in the prospectus. The Funds are distributed by Cavanal Hill Distributors, Inc. a registered Broker/Dealer, member FINRA and wholly-owned subsidiary of BOKF.
Commentary provided is for the indicated period and is designed to provide a frame of reference. It does not constitute investment advice. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. The opinions expressed herein reflect the judgment of the authors at this date and are subject to change without notice and are not a complete analysis of any sector, industry or security. This document contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the Cavanal Hill Funds, the securities and credit markets and the economy in general. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “plans,” “projects,” variations of such words and similar expressions are intended to identify such forward-looking statements. Management judgments relating to and discussion of the value and potential future value or performance of any security, group of securities, type of security or market segment involve judgments as to expected events are inherently forward-looking statements. Management judgments relating to and discussion of the value and potential future value
or performance of any security, group of securities, type of security, or market segment involve certain risks, uncertainties and assumptions that are difficult
to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expressed, implied, or forecasted in such forward-looking statements. The potential realization of these forward-looking statements is subject to a number of limitations and risks, which are described in the Fund’s prospectuses, and investors or potential investors, are cautioned to review the Funds’ prospectuses and the description of such risks. Neither the Funds nor the Funds’ investment adviser, Cavanal Hill, undertake any obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events or otherwise.
Investment Risks
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in below investment-grade fixed income securities. Fixed income securities are subject to interest rate risks. The principal value of a bond falls when interest rates rise and rise when interest rates fall. The Fund invests in foreign and emerging market securities, which involves certain risks such as currency volatility, political and social instability, and reduced market liquidity. Mid- and small-cap companies may be more vulnerable to adverse business or economic developments. During periods of rising interest rates, the value of a bond investment is at greater risk than during periods of stable or falling rates. International investing involves increased risk and volatility. The Fund’s concentration in energy-related industry securities may present more risks than would be the case with funds that diversify investments in numerous industries and sectors of the economy. A downturn in the energy sectors would have a larger impact on the Fund than on a fund that does not concentrate
in these industries. Energy sector securities can be significantly affected by events related to political developments, energy conservation, commodity prices, and tax and government regulations. The performance of securities in the Fund may, at times, lag the performance of companies in other sectors or the broader market as a whole. Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries. The Fund may engage in active and frequent trading. Diversification does not assure a profit nor protect against loss.
The Morningstar Rating for funds or “star rating”, is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-ended funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. it is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a management product’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star.
The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and
10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/50% three- year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns.
While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.
Cavanal Hill World Energy Fund was rated against the following numbers of Equity Energy funds over the following time periods: rated 3 stars against 67 funds in the last three years, rated 5 stars against 65 funds in the last five years, and rated 5 stars against 59 funds in the last ten years.
Past performance is no guarantee of future results.
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If you’d like additional information about this or any of the Cavanal Hill Funds, please contact Bill King at 855.359.1898, Bill.King@cavanalhill.com, or cavanalhillfunds.com.
Not FDIC Insured | May Lose Value | No Bank Guarantee