Mark Dampier: Years of oil industry expertise will pay off
Saturday 16 April 2011
In contrast to many fund management groups Artemis rarely launches new funds, so when it does it is usually worth paying attention. Cynics might conclude that its new fund focusing on the energy sector has its origins in the firm's marketing department, given that the price of oil is such a hot topic at the moment. However, it is actually the brainchild of John Dodd, one of the founders of Artemis and a fund manager who has been specialising in this area for years. Indeed, his Artemis Alpha Investment Trust already has substantial exposure to the sector.
With this new fund Mr Dodd is going to be assisted by Richard Hulf, a graduate of Imperial College with an MSc in petroleum engineering. Mr Hulf has run an oil and gas research consultancy for the last six years, and has provided independent research for Artemis during this time.
So why launch such a fund now? First, Mr Dodd believes crude oil will continue to see structural demand, especially from emerging markets. On top of this, he believes that geopolitical risk will persist, with certain factors making oil vulnerable to supply shocks. A notable example is Egypt, where the Suez Canal is a major route for the transportation of oil. Most importantly though, he believes that there are a large number of stock opportunities in the energy sector, irrespective of underlying energy prices. He therefore wanted the fund to focus firmly on energy, as opposed to mining or other resources, and primarily invest in less well-researched small and medium-sized companies.
While it may be thought of as a single theme fund, it can invest worldwide in energy companies of all types and diversify across the entire "energy chain", including oil and gas exploration, energy transmission, utility providers and businesses developing sustainable alternatives to fossil fuels. After many years in the sector, both Mr Dodd and Mr Hulf have a valuable array of contacts in each of these areas.
The world economy is based on the consumption of energy, and ensuring that you have some exposure in your portfolio seems a good idea. Global energy demand is growing. Developed economies continue to be energy intensive, and emerging economies are striving to industrialise, which consumes even more.
On the other side of the equation, supply is constrained. Pressure is building on finite resources such as oil, gas and coal.
Price volatility is inevitable in the short term, but over the longer term I believe the trend is for progressively higher prices, and this should translate to growing profits for firms operating in the sector.
Interestingly, higher prices could also unlock further opportunities. The vast deposits of crude oil located in the tar sands of Canada are an example. They represent the second largest oil reserves in the world, but were considered too expensive and difficult to extract from only a few years ago. As the oil price has risen they have become more economically viable. This pattern is repeated throughout the world, meaning opportunities for companies who already own resources in the ground, those which seek to find them and those who develop the technology to extract them. This fund is designed to exploit them.
Although fossil fuels dominate the supply of energy at the moment, their increasing scarcity is intensifying the search for renewable alternatives. As new ways and means of generating and using energy emerge there will be winners and losers, creating even more chances for smart fund managers like John Dodd to earn their stripes.
What I really like about this new fund is that it has been driven by a genuine investment opportunity. It has to be said John Dodd could retire today if he wanted. He has been managing money successfully for many years. However, his enthusiasm to exploit this theme has dispelled such thoughts, and I for one will be following his progress with keen interest. I agree with him that this is an important investment theme that will run for many years to come.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent
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