Rhodes targets energy turnaround

The manager is holding 20 per cent of his fund’s assets in out-of-favour energy stocks.

He said he had “not de-risked” the portfolio, and remained confident the investments would bear fruit in time.

Mr Rhodes had apologised to investors in January this year after underperforming in 2014, but told fund holders last week that he was now seeing “extreme opportunities” for his Global Dividend fund.

The £6.5bn portfolio lost 11 per cent in the 12 months to September 28, while its benchmark – the MSCI AC World index – shed 1.7 per cent, data from FE Analytics shows.

Mr Rhodes, who has run the fund since its July 2008 launch, said: “We have had a very difficult 12 months. It was all going swimmingly until about July last year.”

The slump has dragged down the vehicle’s three-year total return to 15 per cent, versus the 28 per cent rise in its MSCI yardstick and a 28 per cent average return from its peer group, the IA Global sector.

But Mr Rhodes is backing his contrarian positions to outperform and restore his performance.

He said: “Energy has never been so out of favour. There has been a very broad-brush sell-off in the sector.

“It presents huge [prospects] and that is where we see extreme opportunities coming through. Our ability to snap back is very strong.”

The manager pointed out that, by having the correct weighting at a time when such stocks are highly unloved, the bounce – when it comes – should be substantial.

He added: “We have not panicked, we have not de-risked. We continue to do what we believe in and have therefore been buying into weakness.

“Some of our biggest names are very weak and that’s the key to fund management – to make sure you have the right weights at the right time.”

Mr Rhodes highlighted methanol producer Methanex, which he had “held since day one” and at 6.4 per cent of the portfolio is his largest holding.

Using current methanol prices as a guide, the stock was trading at a free cashflow yield “of somewhere close to 15 per cent”, he said.

“[Methanex’s] shares have more than halved in the past six to nine months; I think it is way overdone.

“The group has increased its dividend for 10 out of the past 11 years.”

He also highlighted energy infrastructure as an area that has caused some pain, but again he thought there was a “mismatch between perception and reality”.

Mr Rhodes pointed to industry constituents, including Keyera, Pembina and Inter Pipeline.

“These are still delivering increased cashflow each year, which is then funding good, solid dividend growth,” he said.

“It is a very different situation to what you see in other areas of the market where dividends are not covered.

“Look at every [oil] major in the world – none of those dividends are covered from cashflow at current oil prices.”

The manager reasserted his case for holding energy companies by pointing out that the worldwide demand for energy continues to rise each year.

Mr Rhodes added: “When I look at some of the prices we are dealing with and I see the fundamentals detached from some of those price movements, I look forward to the day when those prices start to correct.”