NEW YORK (Reuters) – Few mutual fund managers pulled out of oil stocks before the price of crude began plummeting in the fall of 2014, according to Morningstar data. Now, some of those who sidestepped the more than 25 per cent decline in energy since September are starting to jump back in.
Their reasoning: the sharp decline in oil prices to six-year lows is already reflected in stock prices, leaving shares primed to stage a rally.
“We’re not being too cavalier: some leveraged companies are going to die, and we’re trying to pick our spots carefully,” said Jayme Wiggins, lead portfolio manager of the $542 million Intrepid Small Cap fund
Wiggins cut his energy exposure by 62 per cent over the first six months of 2014. Yet since the start of 2015, he’s added four energy companies to his portfolio, including SM Energy Co, a $2.2 billion market cap drilling company whose shares have dropped 41 per cent over the last 3 months, he said.
Overall, 450 out of the more than 3,200 US stock mutual funds reduced their exposure to energy stocks by 20 per cent or more between January and September of last year, according to Morningstar data, by an average of 40 per cent.
Not all of those funds reaped outsized benefits from moving away from oil, however. During a year in which the broad stock market rose about 11 per cent before dividends thanks to a more than 25 per cent rally in utility and healthcare stocks, some fund managers who sold energy at an opportune time found it was not enough to boost their performance. Wiggins’s fund, for example, gained less than a percentage point last year, putting it in the bottom half of its peers.
Those that did profit from their call on oil were funds like the $125 million Nuveen Large-Cap Core fund, which moved into retailers and airline companies that benefited from the decline in oil prices. The fund gained 16.4 per cent last year, putting it among the best performers in the 1,656 large-cap funds in its Morningstar category.