Tim Guinness, chairman and CIO of Guinness Asset Management, said natural gas is an excellent buying opportunity after a dramatic fall in value caused by the US' recent move into shale gas.
The shale gas revolution has seen the average price drop over 50% from around $8 per mcf (thousand cubic feet) during the middle of the noughties, to just $3.50.
But Guinness (pictured) said the price has fallen too far and, although it is unlikely to revert back to its former level, he still sees a great deal of upside.
“The biggest opportunity which is staring us in the face is the languishing US natural gas price,” Guinness said.
“Our view is that it is bound to recover to $6. The US gas market is very competitive as there are lots of players, but it also tends to exhibit boom and bust characteristics.”
Guinness said while there is no squeeze from the supply side, demand is soaring and, as a result, he expects to see price rises which will feed through to holdings within his Global Energy fund.
“Demand is accelerating and supply is stable, and we can see it potentially declining – then of course the market will tighten and the price will rise,” he said.
“It should settle at whatever the marginal cost of production is and we think that is between $5 and $6. When that happens, all these US gas companies that are scraping a living at a price of $3.50 will see their profits come back.”
At present, the Guinness Global Energy fund is invested in companies including Devon Energy Corporation, one of the largest US-based independent natural oil and gas producers, and Ultra Petroleum.
Guinness has also doubled his position in Gazprom, the largest extractor of natural gas in the world, to 3.3% in the last few months as part of the same investment theme.
Elsewhere, Guinness continues to see opportunities in the mega-cap oil and gas majors.
“Names that have done very well for us are OMV and Hess Corporation,” Guinness said. “Names that we hold because their time is coming are companies like Canadian Natural Resources, Total, and Shell.”
In the last year, Guinness’ fund has delivered a return of 14.3%, versus the MSCI World Energy index return of 8.8%, according to Bloomberg.
Below is a list of his top ten positions
Created by 150 individuals
Investor urges fund group to be more cautious on promoting funds
Ahead of 12 December general election
Demerger expected to complete in Q1 2020
Engaging with finances