Absolute return manager Luke Newman has reversed a key short position in his fund after dramatic falls in the price of oil.
Mr Newman, who runs the £406m Henderson UK Absolute Return fund, had instigated several short positions in oil stocks, which benefit the fund when those share prices fall.
The manager said he had profited from this positioning, but following a steep decline in the price of oil, he has now closed his short positions in oil companies, including Royal Dutch Shell, and is now long several oil companies.
Being long means the manager will benefit if the share prices of those businesses rise.
The manager also expected the price of oil to be a key theme in 2015 and one which would potentially shape other investment decisions.
“In the world of lower oil prices, there are a lot of areas that have oil as an input, such as transportation, cruises and airlines,” he said.
“And from a UK consumer point of view, their expenditure on petrol will have decreased and that should give a boost to UK consumers.”
The price of oil fell again on Tuesday last week by more than $1 per barrel with Brent crude hitting $78.6 per barrel at the time of writing. The drop came after talks at the Organisation of the Petroleum Exporting Countries ended in stalemate.
Just six months ago, Brent crude was priced roughly $110 per barrel.
Elsewhere, the manager said he had recently closed a short position on UK banks, including in HSBC and RBS.
HSBC’s share price has risen just 0.5 per cent year to date after some dramatic falls, while RBS has grown 14.2 per cent during the same time frame, but again it has been extremely volatile, according to data from FE Analytics.
UK equity income giant Neil Woodford sold his small holding in HSBC earlier this year because of concerns UK banks were being levied with oversized and growing fines.
Mr Newman said the volatile markets this year meant he had concentrated more on what he called his tactical book, the part of the portfolio that is more opportunistic.
“It’s interesting to see which part of our portfolio is driving returns,” he said. “In 2013, it was the core fundamental books; this year it was the tactical book.”
Mr Newman said there had been several “flash points” in 2014, including the sanctions placed on Russia because of tensions with Ukraine, Ebola, Scottish independence, uncertainty around regulation and several other events that unsettled investors.
“When shares are as volatile as they were this year, we try to stay unemotional about our holdings,” he said.
“It was right to be short until the summer, when it was time to initiate some long holdings.”
Mr Newman continues to favour insurance companies, in which he has maintained a long position throughout the year.
“We have increased the longs in our favourite holdings, such as Legal & General and Friends Life,” he said.
Legal & General is his second-largest holding, making up 3.1 per cent of his portfolio. Friends Life, his third-largest holding, makes up 2.6 per cent of his portfolio.
