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18-10-2015, 11:24 PM
Fund manager takes plunge into oil sector
Barry FitzGerald
[Image: barry_fitzgerald.png]
Resources Editor
Melbourne
[b]Contrarian fund manager Allan Gray made a killing by wading into gold stocks when they were down and out 18 months ago. Now the $3.4 billion fund suspects that beaten-up oil stocks could offer the same upside potential.[/b]
Allan Gray took up big positions in gold stocks Newcrest (it still holds 5.7 per cent of the register) and Evolution before the industry’s fortunes improved dramatically in response to a combination of costs-out and the fall in the US exchange rate, with the stocks doubling and trebling respectively.
While oil stocks are also picking up the benefit of the lower dollar, they are still coming to grips with the need to cut costs and rein in capital expenditure in response to the collapse in oil prices from $US95 a barrel last year to $US47.
And because global oil consumption is not as dependent on China as the rest of the minerals complex, Allan Gray managing director and chief investment officer Simon Mawhinney believes dipping into oil stocks could be rewarding.
“A lot things out there resemble where gold was 18 months ago, where you have large parts of the cost curve generating losses,’’ Mr Mawhinney told The Australian.
“It is generally those industries that present real investment opportunities if investors are happy to look five or so years forward, and if they are not obsessed with trying to pick the bottom.
“They are really the ones that pay off in spades. Many of them are difficult to play, and some of them have structural challenges, like coal. The most obvious candidate I think is energy.
“We are at a point of reasonably extreme pain with energy prices where something has to give.
“But it is certainly one area where you can find producers with high-quality assets low on the cost curve. They will become great investments provided they can be acquired at reasonable prices today,’’ he added.
Mr Mawhinney said it was the area on which Allan Gray was focusing on the most.
Woodside has an 8 per cent weighting in the fund, and a position is being built in Origin to the point where it represents 6 per cent of the funds invested. Origin recently announced a $2.5bn rights issue.
“We find companies that recapitalise and then significantly curtail their capex spend, and focus on cash generation, make for a very good time to be investing, providing they have quality assets,’’ Mr Mawhinney said.
He added that Origin’s utility business should help it navigate the storm. “Other oil and gas companies don’t have that. It makes Origin a safer bet.’’
Allan Gray has also been buyer of engineering group WorleyParsons.
- THE AUSTRALIAN
- OCTOBER 19, 2015 12:00AM
Barry FitzGerald
[Image: barry_fitzgerald.png]
Resources Editor
Melbourne
[b]Contrarian fund manager Allan Gray made a killing by wading into gold stocks when they were down and out 18 months ago. Now the $3.4 billion fund suspects that beaten-up oil stocks could offer the same upside potential.[/b]
Allan Gray took up big positions in gold stocks Newcrest (it still holds 5.7 per cent of the register) and Evolution before the industry’s fortunes improved dramatically in response to a combination of costs-out and the fall in the US exchange rate, with the stocks doubling and trebling respectively.
While oil stocks are also picking up the benefit of the lower dollar, they are still coming to grips with the need to cut costs and rein in capital expenditure in response to the collapse in oil prices from $US95 a barrel last year to $US47.
And because global oil consumption is not as dependent on China as the rest of the minerals complex, Allan Gray managing director and chief investment officer Simon Mawhinney believes dipping into oil stocks could be rewarding.
“A lot things out there resemble where gold was 18 months ago, where you have large parts of the cost curve generating losses,’’ Mr Mawhinney told The Australian.
“It is generally those industries that present real investment opportunities if investors are happy to look five or so years forward, and if they are not obsessed with trying to pick the bottom.
“They are really the ones that pay off in spades. Many of them are difficult to play, and some of them have structural challenges, like coal. The most obvious candidate I think is energy.
“We are at a point of reasonably extreme pain with energy prices where something has to give.
“But it is certainly one area where you can find producers with high-quality assets low on the cost curve. They will become great investments provided they can be acquired at reasonable prices today,’’ he added.
Mr Mawhinney said it was the area on which Allan Gray was focusing on the most.
Woodside has an 8 per cent weighting in the fund, and a position is being built in Origin to the point where it represents 6 per cent of the funds invested. Origin recently announced a $2.5bn rights issue.
“We find companies that recapitalise and then significantly curtail their capex spend, and focus on cash generation, make for a very good time to be investing, providing they have quality assets,’’ Mr Mawhinney said.
He added that Origin’s utility business should help it navigate the storm. “Other oil and gas companies don’t have that. It makes Origin a safer bet.’’
Allan Gray has also been buyer of engineering group WorleyParsons.