The moves into shares of frackers, refiners and integrated oil
conglomerates reflect a gamble that the sector will rebound after
rising supply and slowing global growth triggered a nearly 60
percent slide in crude prices since the middle of 2014.
But so far, the gambit has not paid off.
"We are kind of holding our nose to buy them, but we see value
there," said Ernesto Ramos, who oversees about $15 billion in
large-cap equity assets at BMO Asset Management. "We've been selling
the defensive part of the portfolio exposed negatively to higher
interest rates, such as consumer staples and utilities, and making
room for what we see as a slow but gradual recovery in world
growth."
BMO's Large-Cap Value Fund boosted it energy exposure to 13 percent
from 10 percent at the end of February after buying more shares of
ExxonMobil Corp and refiner Valero Energy Corp, for example.
With oil prices down, ExxonMobil is seen as a defensive play because
its refineries and chemicals manufacturing can benefit from lower
input costs and offset lower profits from crude production.
![](http://archives.lincolndailynews.com/2015/Oct/01/images/ads/current/LPL_small%201.gif)
Shares of Exxon and other oil majors, such as Chevron Corp and
ConocoPhillips are hardly doing any better than the S&P 500 Energy
Index, which is down 25 percent this year.
Exxon shares are off 21 percent, while Chevron and Conoco are down
32 percent and 34 percent, respectively, reflecting expectations
that the global crude supply glut will persist, ultimately weighing
on their returns.
A Reuters analysis of 265 actively managed large-cap funds with at
least $500 million in assets and combined assets of about $1.8
trillion, revealed that 25 percent of them increased their energy
sector bets this year.
That overall group of funds produced an average return of minus 7.17
percent so far this year, according to Lipper Inc, a Thomson Reuters
company. And three-quarters of the funds that increased their
exposure to energy performed worse than the overall average.
(Graphic: http://link.reuters.com/mug75w)
INVESTOR PULLOUT
Investors have not been pleased with the shift, pulling nearly $27
billion from funds that increased exposure to energy, according to
Lipper data. Those which did not, saw about the same amount of net
investor withdrawals, but over a larger number of funds with nearly
five times more in assets, Lipper data shows.
BMO's Ramos said managers and investors have to remain patient with
their energy picks.
"We think we will eventually be rewarded with these stocks," he
said.
The $2 billion Ridgeworth Large Cap Value Equity Fund made among the
biggest bets on the energy sector among its peers earlier this year,
raising its exposure to 14 percent at the end of August from 6.7
percent at the end of February, according to Lipper. The fund nearly
doubled its stake in ConocoPhillips and bought more shares in EOG
Resources, Hess Corp and Noble Energy Inc, disclosures show.
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All of those stocks are down at least 19 percent over the past three
months, badly underperforming broad benchmarks.
The Ridgeworth fund's year-to-date total return of minus 13 percent
is worse than 88 percent of similar funds, according to Morningstar
Inc. Mills Riddick, manager of the fund, declined to comment for
this story.
Other portfolio managers who bet big on some energy stocks, thinking
they found bottom, or somewhere near it, have been sorely
disappointed, too.
Take the $68 billion Investment Company of America fund, which
bought nearly 23 million shares of former shale oil boom star
Chesapeake Energy Corp during the first half of the year. That
represented just 0.50 percent of the fund's assets, but still hurt
as Chesapeake shares dropped 43 percent during that time. Chesapeake
stock has fallen 70 percent since November, and 39 percent since
June, to below $7 a share.
The fund, run by Capital Group’s American Funds, declined to
comment, saying as a matter of policy the company does not discuss
individual holdings. The fund's year-to-date total return of minus
8.90 percent is worse than that of 66 percent of peers, according to
Lipper. The fund is not alone as many other managers have made bets
on the belief that the slump in oil prices would be short-lived.
By contrast, large-cap portfolio managers that did not get caught up
in the shale oil boom and remained skeptical about crude recovery
delivered positive returns for their investors, according to the
analysis.
Sonu Kalra, manager of the $20 billion Fidelity Blue Chip Growth
Fund, has kept his portfolio's exposure to energy below 2 percent of
assets.
![](http://archives.lincolndailynews.com/2015/Oct/01/images/ads/current/memorial_home_sda_061115.png)
His fund's year-to-date total return of minus 2.85 percent is better
than that of 73 percent of its peers. This year he has eliminated
positions in oil refiner Hess and oilfield services provider
Halliburton Co while hunting for more information technology stocks.
He said what a portfolio manager chooses to avoid can often be as
important as what to own.
"It has been that type of year."
(Reporting By Tim McLaughlin; Editing by Richard Valdmanis and
Tomasz Janowski)
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