The $22m Dorset Energy hedge fund is seeking European investors in a push of the portfolio, which i...
The $22m Dorset Energy hedge fund is seeking European investors in a push of the portfolio, which is aiming for absolute returns from investing predominantly in the oil sector.
David Knott, portfolio adviser, said the long/short fund is currently focusing on pairs trades as it is finding few opportunities in any focused shorts.
Recently, the fund has been long on two key Canadian stocks, Canadian Natural and Talisman, and has been short on Spinnaker Exploration in the US.
The reasons for the long positions, said Knott, were that the Canadian stocks were selling at less than their NAVs and were on low multiples of their cash. While the fund has not profited much from the Canadian long plays, it has gained from its short in Spinnaker.
Reasons for its short positions tend to come down to incorrect research on the company, he added.
The fund's advisers will take positions based on whether they believe Wall Street has improperly assessed the value of a particular firm. The oil industry lends itself to that because it is so capital intensive.
Knott said: 'Mostly, it is difficult to see the major asset of these firms. It is an industry that lends itself to hype and sometimes fraud.'
On the long side, the advisers carry out a lot of research on exploration to find firms involved in interesting projects that have not yet worked their way into the price yet.
One long possibility is Murphy Oil, which has a project underway in Asia at present that could dramatically impact on its share price, said Knott.
He is unsure of the direction of the oil price at the moment, as there are so many factors to consider, especially with the Iraq/US trouble. Near term, he said, it can be disruptive, but further out Iraq could become a large exporter of oil.
If the US ends up in control in the country, the undeveloped oil fields there could be used to increase the country's production from the 2.5 million barrels a day it now produces to some six to seven million a day. That would have a dramatic impact on the price of oil, he said.
Growth in the offshore Atlantic Canadian provinces project, TerraNova, could, overtime, also lead Canada to become a major exporter of oil, thereby impacting on the price.
The fund is run as a concentrated portfolio by industry sub-sectors with single holdings limited to 20% of the portfolio at cost. Leverage is rarely used and it is currently hold- ing some 25% in cash, and is net long.
Paul Bruns and Elaine Parkes
3,000 left to transfer
Record numbers of people aged 90 plus
From 3 to 10 October