The oil price fell to record lows at the start of 2016, but since then Brent crude has climbed to $56 (£45) a barrel and, with inflation rising, could go higher still. The recent decision by the Organization of the Petroleum Exporting Countries (Opec) and non-Opec oil-producing countries to stem supply also increases the likelihood of the oil price rising. The combination of growing demand and lower supply could create a favourable environment for companies with energy resources, and their service providers and distributors. One way to tap in to their potential gains is through Guinness Global Energy Fund (IE00B6XV0016).
- Oil and gas exposure
- Good short-term performance
- Experienced managers
- Inflation hedge
- Poor long-term performance
This specialist fund invests in the listed equities of companies engaged in the exploration, production and distribution of oil, gas and other energy sources. It aims to provide investors with long-term capital appreciation via a concentrated portfolio of around 30-40 stocks. Normally about 90 per cent of the fund is invested in companies with a market capitalisation of more than $1bn (£805m).
"The oil price has been sitting at around $55 dollars a barrel for some time now, which is not ideal for any company in this area as they need the oil price to be about $65 to $75 dollars a barrel to break even," says Michelle McGrade, chief investment officer at TD Direct Investing. "But I think the oil price will rise, with the moves to stem supply, and being in this fund would be a good bet as not only would you benefit from the rising oil price, but also from those companies that are restructuring and becoming more efficient."
Another reason to consider the fund is to mitigate increasing inflation, as the oil price tends to rise along with inflation. Consumer prices index (CPI) inflation hit 1.8 per cent in January 2017 and the Bank of England expects it to peak at 2.7 per cent later this year.
Guinness Global Energy is run by a team of three: Will Riley, Jonathan Waghorn and highly experienced energy investor Tim Guinness, who has more than three decades within the industry. The managers take a two-pronged approach to identifying stocks: they make top-down assessments on energy subsectors such as oil, natural gas, coal, nuclear and alternative energy; and they screen individual companies, particularly those trading at value prices.
The fund's global exposure means it is diversified across both developed and emerging markets. It has 50 per cent of its portfolio in US, 8.5 per cent in Chinese and 3.5 per cent in Russian stocks. Its largest holding is PetroChina (601857:SHH), one of the world's largest integrated oil and gas companies, which the fund's managers believe has significant growth potential.
The fund's largest sector exposure is integrated oil and gas companies, which include a mix of mid- and large-cap stocks, such as Exxon (XOM:NYQ), Chevron (CVX:NYQ), BP (BP.), Royal Dutch Shell (RDSA), ENI (ENI:MIL), Statoil (STL:OSL) and OMV (OMV:VIE).
The fund has performed well over one year beating its benchmark, the MSCI World/Energy index.
Over the longer term it has underperformed its benchmark, though beats the average energy fund, and because the fund only invests in the energy sector it is more likely to be volatile, making it a higher-risk option for investors.
But if you have a higher risk appetite and a long time horizon, allowing you to ride out periods of under performance, a positive outlook for the oil price, the fund's experienced managers and their selective approach to finding companies mean Guinness Global Energy could still be a good way to beat inflation via energy sector growth. Buy. EA.
Guinness Global Energy Fund (IE00B6XV0016) | |||
|---|---|---|---|
| Price: | £10.22 | 3-yr mean return: | 2.01% |
| IA sector: | Global | 3-yr Sharpe ratio: | 0.07 |
| Fund type: | Oeic | 3-yr standard deviation: | 21.20% |
| Market cap: | $292m | Yield: | 0.00% |
| No of holdings: | 39* | Ongoing charge: | 1.24% |
| Set-up date: | 31/03/2008 | More details: | guinnessfunds.com |
| Manager start dates: | Tim Guinness: 31/03/2008, Will Riley: 1/01/2010, Jonathan Waghorn: 9/09/2013 | ||
Source: Morningstar, as at 27/02/17, *Guinness Asset Management, as at 31/01/17
Performance
| Fund/Benchmark | 1 year total return (%) | 3 year cumulative total return (%) | 5 year cumulative total return (%) |
| Guinness Global Energy Fund | 47.7 | -9.2 | -1.2 |
| MSCI World/Energy index | 40.2 | 9.0 | 13.9 |
| IA Global sector average | 33.6 | 41.4 | 72.4 |
Morningstar Sector Equity Energy average | 49.4 | -2.7 | -9.1 |
Source: Morningstar as at 24/02/17
Top 10 holdings as at 31/01/2017 (%)
| PetroChina | 4.2 |
| Halliburton | 3.8 |
| Statoil | 3.7 |
| Total | 3.7 |
| Royal Dutch Shell | 3.7 |
| Noble Energy | 3.7 |
| Valero Energy | 3.6 |
| ENI | 3.6 |
| BP | 3.6 |
| Schlumberger | 3.6 |
Source: Guinness Asset Management, as at 31/01/17
Sector breakdown as at 31/01/2017 (%)
| Integrated oil & gas | 46.3 |
| Oil & gas exploration & production | 35.8 |
| Oil & gas equipment & services | 9.0 |
| Oil & gas refining & marketing | 3.6 |
| Oil & gas drilling | 2.2 |
| Solar | 0.9 |
| Cash | 2.3 |
Source: Guinness Asset Management
IC Tip rating
| Tip style | Growth |
|---|---|
| Risk rating | High |
| Timescale | Long term |
