Mark Dampier: Energy fund suffers in a risky sector

The Analyst

The case for investing in the energy sector is persuasive as global demand continues to grow. Developed economies remain energy-intensive, while emerging ones are striving to industrialise, which consumes even more energy.

On the other side of the equation, supply is constrained. Pressure is building on finite resources such as oil, gas and coal, meaning prices have increased over the long term, though short-term volatility remains. Indeed, energy stocks have had a particularly poor period, which unfortunately coincides with the launch of the Artemis Global Energy Fund in April 2011.

So far, it has been a difficult time for the fund. For one thing, it is positioned differently from its benchmark, which has a high proportion in integrated oil and gas producers. These stocks tend to have an income bias, and have been in favour with investors, given the low rates of interest seen on deposit. The fund is instead skewed more towards exploration and production companies, some of which operate in less developed or more politically sensitive markets.

One such holding that has suffered is Transglobe Energy. Its operations are based in Egypt, and bouts of instability there have contributed to negative investor sentiment. The company, though, has seen strong production growth, and its management remains abundantly positive. This type of company accounts for two-thirds of the portfolio, and also includes firms such as Karoon Gas Australia, Providence Resources and Ithaca Energy.

These companies also tend to suffer when there is little or no news flow, as investors become uninterested, and recently this has been the situation. Despite this, managers John Dodd and Richard Hulf expect a positive news flow in the second half of this year, which they hope will boost share prices.

Exposure to the US shale oil and gas theme has also been increasing after a recent visit to the region. The managers believe an improving US economy will provide a boost, while politicians are also warming to the idea of exporting liquid natural gas.

Elsewhere, UCITS rules permit up to 10 per cent of the portfolio to be invested in unquoted companies. The fund has always been below this limit, holding 4 to 8 per cent in unquoted companies since launch.

One of the largest unquoted holdings is Vostok Energy, where 1.8 per cent of the portfolio is invested. Overall, the position has disappointed as the managers have been forced to write the holding down to zero. All the pain has now been taken, though John Dodd and Richard Hulf still see value in the company and await a potential buyer. The next few months will be vital in determining whether they are correct. This highlights the risks associated with investing in unquoted companies.

Forecasting the price of oil has always been difficult. Many have suggested the oil price should fall given the slowdown in the developed world. Yet, in a globalised world, there are many other factors affecting the oil price. John Dodd and Richard Hulf suggest it is currently high enough for most producers to be making good money. They believe the price is unlikely to fall, as Saudi Arabia and Opec need to keep it above $90 per barrel in order to fund political efforts to stave off their own Arab Spring. Couple this with tensions in the Middle East and the fact the OECD, which has enormous oil reserves, will release supply when the price gets too high, means the market tends to be fairly range-bound.

The Artemis Global Energy Fund has, in fact, fared slightly better than the majority of other specialist energy funds. The problem arises for those investors at launch who have been stuck in one-way traffic and are still nursing a loss. Of course, this is nobody's preference – I own the fund myself, so I understand that all too well. However, John Dodd and Richard Hulf are both experienced and talented managers in this niche area of the market, and I believe they have the ability to turn performance around. Both managers have significant amounts of their own money in the fund and I, too, will be remaining patient for some time yet.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Assistant / Buyer

    £15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

    Recruitment Genius: Compliance Manager

    £40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

    Day In a Page

    John Palmer: 'Goldfinger' of British crime was murdered, say police

    Murder of the Brink’s-MAT mastermind

    'Goldfinger' of British crime's life ended in a blaze of bullets, say police
    Forget little green men - aliens will look like humans, says Cambridge University evolution expert

    Forget little green men

    Leading evolutionary biologist says aliens will look like humans
    The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

    The Real Stories of Migrant Britain

    An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
    Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

    Dying dream of Doctor Death

    Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy
    UK heatwave: Temperature reaches 39.8 degrees on Central Line - the sweatiest place in London

    39.8 degrees recorded on Tube

    There's hot (London) and too damn hot (the Underground). Simon Usborne braved the Central line to discover what its passengers suffer
    Kitchens go hi-tech: From robot chefs to recipe-shopping apps, computerised cooking is coming

    Computerised cooking is coming

    From apps that automatically make shopping lists from your recipe books to smart ovens and robot chefs, Kevin Maney rounds up innovations to make your mouth water
    Jessie Cave interview: The Harry Potter star has published a feminist collection of cartoons

    Jessie Cave's feminist cartoons

    The Harry Potter star tells Alice Jones how a one-night stand changed her life
    Football Beyond Borders: Even the most distruptive pupils score at homework club

    Education: Football Beyond Borders

    Add football to an after-school homework club, and even the naughtiest boys can score
    10 best barbecue books

    Fire up the barbie: 10 best barbecue books

    We've got Bibles to get you grilling and smoking like a true south American pro
    Wimbledon 2015: Nick Bollettieri - Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power

    Nick Bollettieri's Wimbledon Files

    Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power
    Ron Dennis exclusive: ‘This is one of the best McLaren teams ever – we are going to do it’

    ‘This is one of the best McLaren teams ever – we are going to do it’

    Ron Dennis shrugs off a poor start to the season in an exclusive interview, and says the glory days will come back
    Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

    Making of a killer

    What motivated a shy student to kill 38 holidaymakers in Tunisia?
    UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

    Just when you thought your commute couldn't get any worse...

    Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
    Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

    The Real Stories of Migrant Britain

    Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
    Cheaper energy on the way, but it's not all sunshine and rainbows

    Cheaper energy on the way, but it's not all sunshine and rainbows

    Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most