The likes of Investec UK Special Situations, M&G Recovery and Majedie UK Focus are among the funds taking the biggest hit today thanks to a punchy position in oil major BP, according to research by FE Trustnet.
BP has fallen by a painful near 9 per cent today thanks to a dire fall in profits that were wholly worse results than investors were expecting.
Underlying profits dropped to $5.9bn, less than half of last year’s profits of over $12bn, a stock market update today revealed.
The company’s share price total return has seen a fall of almost 25 per cent since June 2014 up until yesterday as the graph below shows, although this does not include today’s plunge.
Performance of stock and indices since 23 June 2014
Source: FE Analytics
BP, as one of the largest oil producers in the world, has historically been a very popular stock among investors, especially among income investors due to a belief in the sanctity of its dividend as well the importance of oil to the global economy’s long-term growth.
However, the plunge in the oil price (also in the graph above), which most agree is a simple oversupply issue, is also increasingly being seen through the lens of a world economy that is slowing down.
This has meant that oil stocks have become a more value/contrarian holding for many. Nonetheless, more than 200 funds have some exposure to the stock including seven portfolios with more than 6 per cent in BP.
Source: FE Analytics
Steven Magill, who heads the UBS UK Equity Income and UBS UK Opportunities funds, has more than 8 per cent of each fund in BP and therefore would be hardest hit from the sell-off.
The sell-off in BP also hit Royal Dutch Shell’s share price, which fell 5 per cent, and unfortunately for Magill and in his investors, the manager had a further 7.2 per cent in the UBS UK Opportunities fund and a further 4.3 per cent in the UBS UK Equity Income fund.
Investec Special Situation’s Alastair Mundy has spent two full calendar years – 2015 and 2014 – in the bottom quartile of IA UK All Companies sector, bringing his three-year numbers for the £992m fund to below both the sector average and the FTSE All Share index
He also carries a high weighting to BP and has 5.4 per cent in Shell.
Performance of fund, sector and index over 3yrs
Source: FE Analytics
The manager recently told FE Trustnet that the market was in “value hell”, with investors staying away from the type of stocks he is known to favour.
Another notable casualty is Tom Dobell’s £3.7bn M&G Recovery fund, which has been bottom decile for the past three full calendar years as well in 2016 so far.
FE Alpha Manager Chris Reid’s £633m Majedie UK Focus fund – co-managed by Chris Field, James de Uphaugh and Matthew Smith – also has more than 6 per cent in BP.
The fund has broadly managed to perform well in most market conditions but last year was a tough one for the fund, which also has a top 10 positon of 3.2 per cent in Shell. Majedie UK Focus was bottom quartile over 2015.
Helal Miah, investment research analyst at The Share Centre, says while most in the market were expecting BP to report a hit to profits they did not expect to see such a mighty blow. However, he says that it is clearly a screaming ‘buy’ following the plunge.
“BP’s full-year results reported this morning did not provide too much of a surprise in terms of the punishment they took as a result of lower oil prices,” he said.
“One of the key topics of discussion is whether the oil giants can continue to pay their dividends. Interested investors should appreciate that BP has decided to maintain its dividend policy and will pay a 10 cents dividend in March.”
“These numbers should not come as too much of a surprise to investors who will have been prepared to ride the storm knowing that oil prices have plunged by 70 per cent since summer 2014. This stock remains a contrarian play on the oil price for investors seeking a balanced return and willing to accept a medium to higher level of risk.”
He says it was the pre-tax charge of $12bn in relation to BP’s Gulf of Mexico oil spill, along with costs, that really rocked investor sentiment this morning.
“As expected, the upstream oil and gas production operations generated a loss of $937m in comparison to a profit of $8.9bn in 2014 and its 20 per cent ownership of Rosneft generated profits of $1.3bn compared to $2.1bn the previous year,” he said.
“Investors should acknowledge that at times of lower oil prices, the downstream divisions generally do better. This has helped mitigate the losses from the upstream operations with profits jumping to $7.1bn from $3.7bn.”
