Each week, a professional investor tells us where he'd put his money. This week:Simon Gergel of the Merchants Trust.
Navigating these uncertain political times is a tricky matter for fund managers these days. Brexit is, of course, a risk to the economy. However, many UK companies are exposed to relatively stronger global markets, where data is positive. As a result, the UK market remains steady, with volatility low.One sector particularly exposed to volatility over the last decade has been the oil and gas producers. Between 2011 and 2014, the price of Brent crude was above $100 a barrel. By early 2016, it had slumped to $27 a barrel, with fears that things could only get worse when Western sanctions on Iran were lifted, exacerbating the oversupply problem.
Today, producers that are members of the oil cartel Opec and Russia have helped to drive Brent back above $60 per barrel, by holding back 1.8 million barrels a day in oil production to tighten markets and prop up prices. Supply cuts are likely to extend beyond March 2018.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The oil and gas producers have posted strong returns as a result they rose by an estimated 6% in October alone, responding to the oil price breaking through $60, its highest level since mid-2015. There were also encouraging results from the big oil companies, showing they are now generating enough cash to cover dividends after capital expenditure costs. This is an important milestone for major oil companies it suggests they've successfully restructured their models to be more resilient in a low-price environment, and are now generating sustainable dividend yields.Roughly 14% of our portfolio at the Merchants Trust is in the oil and gas sector. The following three stocks were among the best contributors to the positive performance of our portfolio in the third quarter of 2017.
Britishoil giant BP (LSE: BP) saw profits jump in the third quarter thanks to higher production and strong downstream earnings pre-tax profits more than doubled in the period to $2.95bn, up from $1.33bn a year ago. The company attributed the successful quarter to three new upstream projects and its highest downstream earnings in five years, and it has exercised spending discipline to generate healthy earnings and cash flow.
Royal Dutch Shell (LSE: RDSB) profits hit $3.7bn in the third quarter, which has enabled the group to resume paying its entire dividend in cash. Profits were helped by a strong performance from its refining business. Shell's gearing (level of borrowing) stands at 25.4%, but the leadership team is committed to reducing borrowings over the near-to-medium term, and reducing the share count via buy-backs in the longer term.
Outside the oil sector, outsourcer Equiniti (LSE: EQN) has also been a strong performer this year, driven mainly by two events. Firstly, rival Capita sold its registrar businesses at a price that implies Equiniti is significantly undervalued. Secondly, Equiniti bought Wells Fargo's US registry business, providing significant potential for near-term cost savings and longer-term growth opportunities.
-
Private school fees soar and VAT threat looms – what does it mean for you?Rising private school fees could see more than one in five parents pull their children out of their current school. Before you remortgage, move house or look to grandparents for help, here’s what you need to know.
-
Best and worst UK banks for online banking revealedWhen it comes to keeping your money safe, not all banks are equal. We reveal the best and worst banks for online banking when it comes to protecting your money from scams
-
As oil prices surge, should you buy BP shares?Analysis The imbalance between supply and demand has sent the oil price surging, bringing bumper profits to oil giant BP. Rupert Hargreaves looks at the numbers and asks if BP shares deserve a place in your portfolio.
-
Should you be worried about energy windfall tax proposals?Analysis Calls have been growing for a windfall tax on UK oil and gas producers. It's a popular idea, but is it a good one? And what does it mean for investors in the UK's energy companies? Rupert Hargreaves explains.
-
BP’s profits surge, but the company’s growth is far from guaranteedAnalysis BP profits are at their highest in a decade, and it looks to be a business firing on all cylinders. But its future is far from certain, says Rupert Hargreaves.
-
BP: really going “beyond petroleum” won't be easyNews BP is recovering and plans to become carbon neutral by 2050. Meanwhile, activist investors are targeting ExxonMobil. Matthew Partridge reports
-
BP looks set to return more money to shareholders as it beats expectationsNews Oil major BP is to embark on a share buyback programme after significantly reducing its debts. Saloni Sardana looks at what it means for your portfolio.
-
BP has slashed its dividend – and markets love itOpinion BP has bowed to the inevitable and cut its dividend in half – and its share price promptly rose. John Stepek explains what it means for shareholders and for beleaguered income investors.
-
BP bows to reality as it writes down $17bn of assetsNews The oil giant has ditched its conspicuously bullish outlook and written down the value of its assets. Will it cut its dividend too? Matthew Partridge reports
-
Watch out income investors – BP looks likely to cut its dividend in the near futureOpinion Oil major BP is writing billions off the value of its assets as it struggles to adapt to the changing world. Unlike Shell, however, BP hasn’t yet cut its dividend. But, says John Stepek, it’s only a matter of time till it does.
