Investments 

Fund managers look to squeeze last income from big oil

Fund managers look to squeeze last income from big oil

Fund managers are taking advantage of decent incomes from oil stocks in the knowledge the good times for investors in the sector are likely to soon end.

Tom Moore, who runs the £270m Standard Life Investments UK Equity Income Trust and the £1.1bn Standard Life Equity Income fund, is focused on oil shares for income.

Mr Moore has both Royal Dutch Shell and BP among the ten largest investments in both funds.

The fund manager said technological changes mean big oil companies may not be a good investment in five years, but he feels at the current valuations, with the companies able to pay dividends of 6 per cent from the cash they generate, rather than debt, the shares are worth owning.

Shell last month announced it would commence paying its full dividend in cash, rather than partly in cash and partly in the shares of the company.   

Alec Cutler, who manages the £26m Orbis Global Balanced fund, the absolute top performer over the past five years out of 165 funds in the IA 40-85 per cent shares sector, has BP and Shell as his two largest holdings and has done for some time.

He said global economic growth should boost demand for the commodity while supply has been constrained because production was cut when the oil price was much lower than it is now, and the dividends available on those shares are attractive.

Paul Mumford, who runs the £160m Cavendish Opportunities Fund said while he thinks the oil price increasing from $40 (£30) to $60 (£45) over the past year obviously helps the big oil companies, he thinks smaller oil company shares may represent better value as the share prices haven’t enjoyed the same share price rally as their large cap peers.

Graham Spooner, investment research analyst at The Share Centre said: ““What is reassuring however is that Shell’s first half 2017 profits jumped to just over $5bn (£3.7m) versus the $1bn (£0.75bn) in the first half of 2016.

"They showed that recent trends of better average oil prices, better operational performance, significantly reduced operating expenses and stronger conditions in the chemicals and refining sector have continued.

“The oil price trending higher since June and potential for further restructuring benefits and new production sites in 2018, could all help restore market confidence. Moreover, the income is attractive but investors should be wary that any fall in the oil price could once again raise questions about the company's ability to maintain its dividend.”

Jonathan Davis, who runs Jonathan Davis Wealth Management in Hertford, said he expects oil companies to among the growth areas in the years to come, after a period when those companies were in the doldrums.

David.Thorpe@ft.com