Fixed Income  

Lundie swoops on out-of-favour energy

Lundie swoops on out-of-favour energy

Bond manager Fraser Lundie has piled into the energy sector on the back of whipsawing oil prices.

Just a few months ago, the Hermes fund manager had no exposure to the sector. But now he has nearly 20 per cent of his £243m Multi-Strategy Credit fund exposed to the energy industry.

The energy sector has been broadly hit by the falling oil price, which plummeted rapidly from a high of $115 per barrel in June last year to dip below $50 per barrel in January.

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Just two of the 12 funds with ‘energy’ in their names in the UK-domiciled open-ended funds universe have delivered a positive return in the past year, according to data from FE Analytics.

At the time of writing the oil price had rebounded to roughly $60 per barrel, a level many predict will remain for some time.

However, Mr Lundie said he was upbeat about the “speed and scale” of the US shale oil and gas industry, citing what he viewed as its “clear potential”.

The manager said he had been snapping up energy bonds as the oil price dropped, particularly BB+-rated US energy company bonds.

“A lot of opportunities opened up as people dumped the bonds,” he said.

“We had to cherry-pick, but we are optimistic about some of the energy companies. They have not been standing still. They have tools to weather the storm.”

But Mr Lundie did not think all energy companies were a perfect buy and noted there was “a significant portion of the US energy sector that isn’t going to recover”.

Elsewhere, Mr Lundie said he had been reducing his exposure to emerging markets and Europe. His allocation to emerging markets bonds has fallen from 30 per cent of his portfolio to about 20 per cent, he said.

The manager thinks emerging markets investment-grade debt was one of the most attractive in the debt space, but warned he did not want to be overexposed.

The corporations he continued to hold and like were export companies that benefited from the strengthening dollar.

Mr Lundie has also been reducing his exposure to European credit. While he said the start of quantitative easing from the European Central Bank was a “huge positive”, he did not expect it to have a massive impact on companies further down the credit curve.

Since its launch in May last year, the fund has returned nearly 3.6 per cent, which is shy of the 4.5 per cent sector average for its strategic bond peers, according to data from FE Analytics.