Concentration in Energy Sector During
Coronavirus (COVID-19) Pandemic
Securities industry standards of care dictate the need to avoid securities concentration in a single stock or sector, such as Energy securities, which includes the volatile Oil & Gas industry, as a foundation for what is considered suitable for investors. The reason for this financial rule of thumb is that investors are not compensated for taking this risk. Securities concentration exists to the extent that any portion of a portfolio’s holding exceeds 10% of the portfolio’s value in a single stock or sector, such as the Energy sector.
The Energy sector includes investments in all aspects of energy exploration, energy infrastructure, transportation, processing, refining, and storage of the nation’s energy resources. These assets include major pipeline systems that deliver products such as natural gas, crude oil, and refined fuels. Recent public offerings by master limited partnerships have been made in energy infrastructure including: liquefied natural gas terminals, gas-to-liquids technology, bio-fuel assets, renewable energy assets, and coal gasification projects.
Energy sector investments have unique risks due to the correlation with the highly volatile commodity markets. The recent drop in demand due to the Coronavirus (COVID-19) Pandemic and Oil producers’ inability to limit supply due to political considerations of the OPEC countries, has resulted in precipitous stock price declines. Brokerage firms and financial advisors are required to determine what percentage of your investment portfolio should be invested in the Energy sector based on your investment objectives, risk tolerances, and investment time horizon.
What Factors Are Considered in a Claim for Damages from Securities Concentration in the Energy Sector to Recover Investment Losses sustained during the Coronavirus Pandemic?
Securities concentration in the Energy sector might be caused by a financial advisor’s recommendation, an employer restriction on sale, tax avoidance, and psychological and emotional attachment to company stock. No matter what the reason for maintaining a concentrated stock position in the Energy sector, a brokerage firm and its financial advisors must recommend suitable risk management strategies to protect the value of any concentrated stock position held in a financial brokerage account. Investors at brokerage firms that do not recommend a fully diversified portfolio that results in concentration in Energy sector may be able to recover investment losses through a securities arbitration award. In some instances, financial advisors might recommend risk management strategies such as complex hedging strategies to reduce the risk of a concentrated stock position. The brokerage firm’s failure to supervise financial advisors who failed to implement the strategy properly may be held accountable for negligence.
KlaymanToskes Energy Sector Current Investigations
KlaymanToskes is currently investigating the handling of investor accounts for securities industry sales practice violations, including concentrated investments in the Energy Sector. Concentrated investments in the energy sector exposed investors to unnecessary risks, these investments include the following:
- Occidental Petroleum (OXY),
- Chesapeake Energy (CHK),
- Goldman Sachs MLP and Energy Renaissance Fund (GER),
- Goldman Sachs MLP Income Opportunities Fund (GMZ),
- Continental Resources (CLR),
- Franklin Square Power & Energy Fund,
- JP Morgan Chase Alerian ETN (AMJ),
- Whiting Petroleum (WLL),
- Diamond Offshore Drilling (DO),
- Halliburton (HAL),
- Schlumberger (SLB),
- Helmerich & Payne (HP),
- Diamondback Energy (FANG),
- Devon Energy (DVN),
- Apache (APA),
- Oneok (OKE),
- Noble Energy (NBL),
- EOG Resources (EOG), and
- Pioneer Natural Resources (PXD).
KlaymanToskes Can Help Recover Investment Losses
KlaymanToskes has been dedicated to the protection of investor rights for decades, from the Tech Bubble in 2000 to the Mortgage Crisis in 2008. Now, we can help you recover investment losses during the Coronavirus (COVID-19) pandemic. KlaymanToskes is investigating whether the securities concentration in the Energy sector resulted in investment losses suffered during the Coronavirus (COVID-19) pandemic. The following type of case facts can support a claim for damages:
- percentage concentration in Energy sector;
- ability to hedge concentrated Energy stock position;
- investment objective and risk tolerance;
- tax ramifications; and
- client sophistication.