Energy investors may worry their funds hold the sliding shares of oil sands companies in Canada affected by the devastating wildfires.
Shares of oil sands companies have fallen sharply in the past week following disruption of the oil sands operations as wildfires take hold the Fort McMurray region where many have operations. Shares of Suncor Energy (SU), one of the largest oil sands companies in Alberta, were down 8.3% since the beginning of the week. Crude oil production companies ConocoPhilips (COP) lost 8.5% week-to-date and Royal Dutch Shell (RDSB) fell 3.2%.
No oil operations reported fire damage, however companies evacuated staff, opened work camps to residents escaping blazes and cut production in Alberta, taking as much as a quarter of the country's oil output off line, with uncertainty about when they would reopen.
Morningstar data shows that a Silver Rated fund Guinness Global Energy has the oil sands company Suncor Energy as the top holding in its portfolio, a 3.6% weighting of the fund. It has 12.5% in total in Canadian equities. The fund has lost 5.2% in one week affected by the sliding value of oil sands stocks amid wildfires; however the fund is still up 12.6% return year to date.
Morningstar analyst Fatima Khizou continues to believe this fund is one of the best propositions within the energy space, benefiting from a well-experienced manager Tim Guinness.
Since launch in March 1998 to the end of November 2015, the fund was well ahead of the MSCI World Energy Index and category average.
2014 was a tough year for energy equities, as the second half saw the oil price plunge. Although the fund suffered an absolute loss over this period, it still beat its average category peer, benefiting from its exposure to European integrated and Canadian oil sands stocks.
“Exploration and production accounted for 38%, and the focus here is on low-cost producers, which have the ability to adapt to a low oil-price environment but also to capture the upside,” Khizou added.
Oil Rebounds
While oil sands production companies were negatively affected by the inferno, the oil price bounced on Thursday as the wildfire threatened Canada’s oil sands, where one of the most expensive place in the world to extract crude oil.
Looking more broadly across the sector, energy and mining companies have benefited from a sign of optimism due to the recent oil price recovery. This also leads to better performance among some of the funds that are highly exposed to the sector.
BlackRock World Mining Trust (BRWM), a Silver Rated closed end fund, gained 47.4% year to date. The expertise of the management team continues to play in favour of this trust, and Khizou views the changes made in 2014, particularly with regard to the diversification of risk, positively. The management team at BlackRock World Mining is highly experienced and has been successful in applying the outcome of its bottom-up and top-down analysis, and investors here have been well compensated over the long term. Analysts continue to believe that BlackRock’s team is one of the best resourced in the sector, underpinned by its experience and knowledge. This fund is cheaper than its Morningstar Category median fund and it is trading at a 12.8% discount currently.
BlackRock Global Funds – World Mining , a Silver Rated fund, gained 32.5% year to date. Over its lifespan to the end of February 2015, the fund has delivered strong absolute returns, slightly outperforming its index.
Fred Fromm, portfolio manager of the Franklin Equity Group believed that there are still potential opportunities in energy producers with low-cost resources, strong management teams, efficient operations and robust balance sheets.
“In our view, the recent volatility in sector stocks serves to highlight the importance of assessing intrinsic value and taking a selective, opportunistic approach to investing in the natural resources sector,” Fromm said.
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