The fund will be managed by energy specialists Craig Pennington and John Coyle, who will be supported by three Asia Pacific analysts based in Singapore, Tokyo and Sydney respectively.
The fund aims to provide capital growth by investing in the fund managers’ 20-30 best ideas. These will consist mainly of traditional oil and gas-based companies but there is scope to invest in other areas such as utilities and alternative/renewable energy sources.
The fund is benchmarked against the MSCI All Companies World Energy index but is not constrained by it as it can also invest in small and mid caps.
Stocks will be selected after extensive research carried out on the global energy stock universe. The portfolio will be focused on companies with a market cap in excess of $100m. Macroeconomic factors are taken into account when generating a shortlist of ideas and only the best stock ideas will be selected for the fund.
The fund will invest no more than 10 per cent into each stock and it can also hold up to 30 per cent in cash. This means the fund managers are not under pressure to ensure cash in invested if they do not see good enough opportunities.
Prices of oil stocks are likely to remain high due to strong demand and relatively limited supply. The oil industry did not invest in the exploration of new resources when the price of oil was lower, which has meant supply is now constrained.
Although the fund managers may pick up cheap stocks that could benefit from oil price rise, not all companies will directly profit from this.
In comparison, natural gas suffered as a result of last year’s hurricanes in the US and prices are low relative to oil, but a recovery could indicate greater scope for growth.
Alternative energy stocks are expensive at the moment but governments are actively encouraging renewable energy sources through incentives such as tax breaks. Alternative energy stocks also tend to be not very big and this increases volatility. However, traditional energy stocks are good for the short term while alternative give the manager a longer-term play on energy markets.