The BP oil spill is not only a catastrophe for the environment but for the company's stock as well. However, it could be good news for other oil company shares, renowned value fund manager Jean-Marie Eveillard said Friday.
BP PLC's stock closed at $37.16 Friday, down 36.4% since the worst oil spill in U.S. history began April 20.
“This incident may reduce drilling in the long term, and that will help the price of oil,” said Mr. Eveillard, senior adviser to the First Eagle Funds group and senior vice president of First Eagle Investment Management.
But some are avoiding oil stocks entirely out of fear that the incident will mean onerous new regulations.
“We continue to avoid the ETFs that are heavily exposed to this now-troubled industry,” David R. Kotok, chairman and chief investment officer of Cumberland Advisors, wrote in a May 31 commentary.
“We believe the pressures on U.S.-based oil and gas service and exploration companies are likely to grow,” he wrote.
A number of mutual funds and exchange-traded funds had sizable holdings in BP prior to the oil spill.
Some of them include Fiduciary Management Inc.'s Large-Cap Fund (FMIHX), which had the largest weighting in shares of BP, with the stock accounting for 4.43% of its total assets as of March 31. The Vanguard Group Inc.'s Energy Fund (VGENX) came in second at 3.94%, and RiverSource Investments LLC's Dividend Opportunities Fund (INUTX) was third with a 3.6% weighting in the stock.
On the ETF side, the top holder of BP shares as of March 31 was the SPDR S&P International Energy Sector ETF (IPW) at 11.8%. BlackRock Inc.'s iShares MSCI United Kingdom Fund (EWU) had a 7.7% weighting in BP shares, and WisdomTree Investments Inc.'s International Energy Fund (DKA) had a 7.5% weighting.
Mr. Eveillard recommends avoiding the temptation to buy BP's stock.
“After such a tremendous decline, some value managers may be looking at BP, but what would worry me is that it seems to be an open-ended liability,” he said. “The management of the company has no idea yet what the total liability is going to be.”
Some advisers are steering clear of investing in any mutual funds or ETFs that invest in BP directly.
“Americans aren't happy with BP,” said Tom Lydon, a registered investment adviser and president of Global Trends Investments.
“It's not just about, "How is this affecting my portfolio?' They are angry,” Mr. Lydon said.
E-mail Jessica Toonkel Marquez at jmarquez@investmentnews.com.
