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Fund Review: Energy


The turbulence dates back to November 2014, notes Robert Crayfourd, portfolio manager of the New City Energy investment trust, “when Opec decided it would no longer act as the market stabiliser”.

In Indosuez Wealth Management’s analysis and asset allocation paper for the third quarter of 2016, it points out the slide in the price of West Texas Intermediate (WTI) oil reached a low of $26.2 a barrel on February 11, resulting in a sharp drop in US production.

According to Indosuez, the number of wells in operation is at its lowest since 1999, falling from 1,800 in December 2014 to the current 414. While this initially triggered a rebound in the oil price, the report suggests the potential for an additional increase now seems limited.

“Iranian production is higher than expected, Iraq is ramping up its output, US inventories are high and, lastly, the rise in oil prices is driving a recovery of US production. In sum, oil prices are now set to trend in a range around the current price, between $35 and $55 a barrel [WTI],” says Indosuez.


BlackRock GF New Energy

Poppy Allonby has been managing this fund since October 2002 and was joined by Alastair Bishop in November 2015. The fund invests at least 70 per cent of assets in the shares of new energy companies. Among the top 10 holdings in the portfolio are Vestas Wind Systems, NextEra Energy and Johnson Controls. The fund has a 21.6 per cent allocation to renewable energy technology and 19.2 per cent in clean power. According to FE Analytics, in the year to August 9, the fund generated a 3.5 per cent return, compared with the IA Specialist sector average of 18 per cent.

Guinness Global Energy

This $323m fund is run by co-managers Tim Guinness, Will Riley and Jonathan Waghorn. FE Analytics data shows the fund had fallen into negative territory in the three years to August 9, returning -10.9 per cent to investors, compared with the 31.6 per cent average return generated by the IA Global sector over the period. However, in the past 12 months to August 9, the fund has delivered 18.1 per cent to investors, outperforming the sector, which returned 14.7 per cent. The fund invests in companies engaged in the exploration, production or distribution of oil and gas. Its three largest holdings are BP, Newfield Exploration and Royal Dutch Shell.


Pictet Clean Energy

The managers behind this £336m fund are Luciano Diana, Xavier Chollet and Christian Roessing. The fund invests at least two-thirds of its assets in companies that contribute to, and benefit from, the switch to lower carbon energy sources. The largest geographical exposure is to the US, at 47.7 per cent. This fund has delivered positive returns over one, three and five years to August 9. Over five years, the fund has delivered a 45.5 per cent return, against the IA Specialist sector average of 26.9 per cent. Holdings include Infineon Technologies and Sempra Energy.

There are 17 investment trusts and open-ended funds investing in energy, according to a search in FE Analytics for those with the word ‘energy’ in their name. Of those, 11 have generated positive returns in the past year to August 9, FE Analytics shows.

“Last year’s negative outlook on the oil price meant many fund managers had to adopt a strategy that mitigated increased oil price sensitivity,” says Richard Robinson, manager of Ashburton Investments’ Global Energy fund.

Other managers have reacted by exiting their holdings in oil in a bid to avoid any associated uncertainty.

Stephen Bailey, manager of the Liontrust Macro Equity Income fund, has sold out of oil completely in his portfolio, noting the oil majors require the price of the commodity to be between $50 and $60 a barrel to maintain current dividend payouts and capital expenditure commitments. He also sees other threats over the longer term.

Mr Bailey explains: “Oil’s long-term outlook is clouded by the viability of alternative energy sources, a trend that is increasingly visible through the transformation of electric cars from expensive and inefficient curiosities to the verge of mass-market penetration. Even the Saudis appear to know the fossil fuels game is up – the recent Vision 2030 agenda outlined a strategy to boost non-oil revenues in the wake of lower-for-longer spot prices.”

But Mr Crayfourd says he is becoming more constructive on the outlook for oil. “Two years of declining global capex is beginning to bite, with production from a number of major regions showing signs of rolling over. The number of new projects coming through are now declining significantly, meaning these natural declines won’t be offset by new projects anymore,” he says.

“We expect demand to outpace supply in 2017, which will lead to better pricing, but this shortfall is likely to be met by the US shales as they dominate the lower end of the cost curve.”

In this special report