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Checking under the hood of energy funds

This article is part of
Guide to Energy Investing in the 21st Century

Gavin Haynes, managing director of Whitechurch Securities, says advisers need to ask what areas managers are investing in and what size of company they are backing to understand if they are at the high risk-end of the spectrum.

Andrew Wilson, head of investment for Towry, says managers can run an ostensibly simple energy fund in hundreds of different ways.

He says: “Just because a fund has energy in the title does not mean it does the same thing as every other fund with energy in the title.

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“You are going to have to take a good look at the prospectus and so on to find out what the investment power of the fund is and to take a look at what the underlying holdings and sector weightings are at that point in time.

“You have to do quite a lot of work as an adviser to figure out what it is you are trying to capture and whether that particular fund is capturing that theme.”

Adrian Lowcock, senior investment manager for Bristol-based Hargreaves Lansdown, says advisers need to understand where the fund’s manager sees opportunities and the philosophy behind the fund.

He says advisers should ask managers how they differentiate their fund for their peers and what is the position taken on resources.

Mr Lowcock says: “There can be a bit of an overlap with resources funds to some extent. What you need to make sure is that it does not move from being an energy fund to a resources fund or a commodities fund if that is not what the investor wants exposure to.”

Darius McDermott, managing director of Chelsea Financial Services, says advisers should always remember that if their clients invest in a UK equity fund they will probably already have exposure to FTSE 100 stalwarts like BP, Shell and British Gas.

He says a lot of US equity funds are currently playing the shale gas story, so there will be more diversified exposure in this asset class too.