Rising Fuel Prices and the Energy Fund Opportunity
The ongoing conflict in the Middle East has led to a sharp rise in fuel prices, creating financial strain for households and motorists. However, this situation has not been entirely negative for all investors. Some have found that their investments in energy funds have seen significant gains, offsetting the rising costs of fuel.
One such fund that has performed well is the WS Guinness Global Energy fund. Managed from the UK by a dedicated team of six professionals at Guinness Global Investors, the fund focuses on companies involved in the exploration, production, and distribution of oil and gas. It is designed for UK investors but closely mirrors the international Guinness Global Energy fund, which caters to a broader audience.
Over the past three months, the fund has delivered impressive returns of 39 per cent, with an additional 10 per cent gain in the last month alone. These figures are even more remarkable when considering the ongoing conflict in the Middle East. Looking at longer-term performance, the fund has returned 49 per cent over three years and 93 per cent over five years.
These results have outperformed the MSCI World Energy Index, which serves as the fund’s benchmark. Jonathan Waghorn, one of the fund managers alongside Will Riley, believes that if oil prices remain around $80 per barrel in the long term, there is potential for further growth of at least 20 per cent.
Waghorn emphasizes the importance of the Strait of Hormuz being reopened, as it is crucial to preventing oil prices from reaching levels that could negatively impact the global economy. “We are losing 10 million barrels of oil a day because tankers are afraid to travel through the Strait,” he explains.
Even if the Strait is reopened, Waghorn notes that the loss of oil will not be quickly recovered. Oil fields will need time to resume production, and the same applies to gas supplies, which may take weeks or even months to return to normal levels.
The fund’s exposure to the oil sector comes through major blue-chip companies such as Exxon Mobil and Chevron in the United States, as well as BP and Shell in the UK. The fund currently holds 29 stocks, with the majority of its assets invested in companies listed in Canada or the United States.
The selection process involves evaluating a universe of 250 companies, each with a market capitalization exceeding £750 million. Every month, the investment team scores these companies based on several fundamental criteria, including relative value compared to peers, profitability, and share price and earnings momentum. This approach helps generate new investment ideas for the fund.
Guinness Global Investors follows a philosophy of equal weighting in its funds. However, the WS Guinness Global Energy fund allows for some variation in holding weights due to the dominance of Exxon and Chevron in the MSCI World Energy Index. Together, they account for 28 per cent of the benchmark, while their representation in the fund is 5.5 per cent and 4.8 per cent respectively. Waghorn notes that no single holding typically exceeds 6 per cent.
The fund charges an annual fee of 0.77 per cent and does not pay an income. The “WS” in the fund’s name stands for Waystone, which administers the fund.
