Spill may mean less drilling, which would drive up price of crude, says renowned value-fund manager
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 stocks, renowned value fund manager Jean-Marie Eveillard said Friday.
BP PLC's stock was trading a bit above $37 in late afternoon trading, down from nearly $60 since the worst oil spill in U.S. history began on 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 First Eagle Funds and senior vice president of First Eagle Investment Management.
But some are staying away from oil stocks altogether for fear that the incident will result in 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. “We expect the final outcomes to be determined by political forces, and those forces are decidedly unfriendly to this industry.”
A number of mutual funds and exchange-traded funds that have sizable weightings in BP have been hit hard since news of the oil spill broke.
Some of them include Fiduciary Management Inc.'s Large-Cap Fund Ticker:(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's Energy Fund Ticker:(VGENX) came in second at 3.94%, and RiverSource Investments LLC's Dividend Opportunities Fund Ticker:(INUTX) was next with a 3.6% weighting in the stock.
On the ETF side, the top holder of BP shares as of March 31 was SPDR S&P International Energy Sector ETF Ticker:(IPW) at 11.8%. BlackRock Inc.'s iShares MSCI United Kingdom Fund Ticker:(EWU) had a 7.7% weighting in BP shares and WisdomTree Investments Inc.'s International Energy Fund Ticker:(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 financial 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.
