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CULVER CITY, CA (Photo by David McNew/Getty Images)Getty ImagesAt the end of last week, fund managers had built up the largest net long position in crude oil futures in nine months, according to data from the Commodity Futures Trading Commission. It is serving as a necessary inflation hedge given a growing conflict in the Middle East, and declining drilling at home. The biggest risk to equity returns remains inflation and funds need to protect themselves. Inflation also risks prolonging the current period of high rates, which is already taking its toll on several asset classes, including housing. Oil and energy equities broadly are increasingly appealing as a result of these dynamics.
Funds flow into energy is expected to continue and the recent involvement of the U.S. in Iran will only accelerate this move. In the latest Bank of America fund manager survey, energy and materials still remained unloved, with managers net underweight. This is even after the recent increase, as allocations were near record lows just earlier this year.
Yield and an inverse correlation to bonds has been another benefit of the trade. The yield on XLE, the energy sector ETF, is also almost three time …
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