While investors broadly shun the energy sector, the $4.5 billion Smead Value fund has made it its largest industry weighting, allocating 21% of its portfolio to the sector. Fund manager Cole Smead stated this represents the “second-best buying opportunity” for energy stocks over the past two decades. In stark contrast, the fund has completely avoided the “Magnificent Seven” stocks and holds virtually no technology exposure.
Although Smead Value is down 4% year-to-date, it has consistently outperformed the Russell 1000 Value Index over the past five, ten, and fifteen years. Its holdings include ConocoPhillips, APA, Diamondback Energy, and Occidental Petroleum. Counter to Cole Smead’s bullish stance, institutional investors are underweight energy by 23% relative to benchmarks – a rare level of under-exposure in the past decade.
This aversion is understandable: energy stocks are trailing the S&P 500 in 2025 performance. Their weighting in the index has fallen to 3% from 4% at the end of last year, far below the 2016 peak of 8% and perilously close to the 2020 record low of 2.3%. Cole Smead noted that U.S. oil prices are down about 5% this year to $67 per barrel, and futures markets indicate further declines ahead, explaining the market’s prevailing “aversion” towards oil stocks.
Cole Smead outlined three reasons for his bullish stance on energy stocks:
He specifically highlighted that private energy companies command higher valuations than their publicly traded counterparts, suggesting publicly listed energy stocks are undervalued.
Cole Smead invoked the classic film Dead Poets Society to frame his perspective, arguing investors should “tear up the script” for how things are traditionally done in the oil and gas industry. In his view, the sector now needs powerful capital allocators – top financiers and investors at the helm – rather than operators. Investors at Smead Capital Management view many current oil companies as excellent investment opportunities based on their return on capital, not the current spot oil price.
Smead Value particularly favors pure-play energy producers over integrated giants like ExxonMobil, citing superior capital returns. For instance, APA’s stock price has fallen about 20% this year to around $19, trading at a forward 2025 price-to-earnings ratio of just 7 times, yet it delivers a total return on invested capital of 10%. Besides its significant holding in ConocoPhillips, the fund recently added to its position in Diamondback Energy, a top-tier Permian Basin producer, and holds Canadian energy companies like Cenovus Energy.
