Changing oil prices prompt search for energy exposure

The managers of the Guinness Energy Fund are seeking the best way to play rising nergy prices.

Energy prices are notoriously volatile, and the sector is vulnerable to geopolitical forces, as well as all the usual market risks. But one fund, growing rapidly for the second time in the career of its managers, is relying on tried-and trusted processes to deliver impressive returns.

The Dublin-registered $350m Guinness Energy Fund, led by highly experienced manager Tim Guinness and co-managers Tom Nelson and Will Riley, is in its second incarnation. Previously co-founder of Guinness Flight Asset Management, Guinness set up the original fund in 1999.

From 2003 as part of a venture with Investec Asset Management, it grew assets under management to more than $2bn, building a superb track record in the process.

At the start of 2008, just after the global financial crisis struck, the deal unwound and Investec took the fund back in-house, leaving Guinness and his co-managers to start again. Under the Guinness Asset Management brand, a new structure – but with the old managers – was launched in March 2008.

By June that year, it had attracted $100m, notably from Swiss investors, and after weathering the risk-off mood of the past three years, the fund is now selling in France, ­Germany and Scandinavia.

Nelson, who joined Guinness with Riley in 2007, says current global macroeconomics is playing right into their hands. Growing oil demand, led by developing countries, has proven resilient to recession, falling only 1.4% in 2009 and growing to all-time highs in 2010 and 2011. They believe it is set to outstrip new supply and force oil prices up for the next ten years.

Importantly OPEC, the cartel of oil producing countries is providing a floor to the oil price, even as other sources of energy and new extraction techniques underpin fresh growth in the sector. Investors seeking yield and diversification, while being nervous about inflationary drift, are looking for experienced energy managers.

FEAR OF FAILURE

But amid the excitement of opportunity, there is the understandable fear of failure and loss. Energy is a n­otoriously difficult sector to understand and exploit. Nelson and Riley say their success and confidence is based on their portfolio construction, processes and risk m­anagement, which have delivered consistently over many years and through different cycles.

They run a concentrated portfolio of just 30 ‘best ideas’ stocks, all equally weighted. This reduces stock specific risk but maintains a level of fund concentration, and ability to deliver alpha.

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