Duncan MacInnes, manager of the Ruffer Investment Company, agrees that falling oil supply and growing demand is “a recipe for rising prices”, even after the 111 per cent rally in the price of Brent crude over the past year.
“Global oil demand is forecast to grow for at least another five years,” he says. “As emerging market countries become wealthier, their demand for energy-intensive things like cars, international travel and air conditioning will rise.”
BP and Shell are becoming increasingly popular choices for global investors.Credit:AP
Such a rise in oil prices would keep profits and dividends from the energy giants buoyant, argues Charteris’ Williams. The win for investors comes despite government pledges to transition towards renewable power.
According to stockbroker AJ Bell, Shell is expected to yield 4.2 per cent next year and BP 5.1 per cent, with their shares having already risen 55 per cent and 50 per cent respectively over the past 12 months. Both remain among the biggest dividend payers on Britain’s stock market despite cuts to payouts as the pandemic struck.
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MacInnes argues BP’s dividend yield makes its blue-chip shares a compelling investment.
“BP is a $US92 billion ($124 billion) company with an additional $US38 billion of debt. At $US75 per barrel of oil, BP produces at least $US15 billion in cash a year, which is being returned to shareholders via a 5 per cent dividend yield,” he says. “It is also buying back its own shares, which is another way of returning cash to investors”.
MacInnes’ fund places BP and Shell as the largest investments and he says others were wrong to shun the two oil giants on ethical grounds.
“Asset managers don’t want to be seen to own these stocks as the inevitability of the green transition, and the awkward questions from clients, has left them uninvestable for many,” he says.
At the same time, he argues, BP’s piling of money into renewable energy could lead to investors re-evaluating the company’s ethical credentials, helping to send its shares higher.
While leaders take to the stage to persuade governments to boost their green agendas, investors may need a bigger push as they reap the rewards of buying into fossil fuels.
“BP is spending $US4 billion to $US5 billion a year investing in renewable energy. If it continues to invest at this rate, in five years it will have a portfolio of $US20 billion of renewable energy assets,” says MacInnes. “When the stock market begins to appreciate oil majors are uniquely placed to be a deep-pocketed part of the solution, we expect their shares to rise.”
Enthusiasm to hold commodities companies is growing.
Over the past month, miner Rio Tinto’s shares were among the 10 most bought by clients of AJ Bell while BP and Shell as two of the most popular shares held in British investors’ Isas – individual savings accounts.
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Customers of rival Interactive Investor, meanwhile, invested heavily in the Guinness Global Energy fund, which holds oil and gas stocks.
The Guinness fund – one of a number investors can buy to benefit from a rising oil price – charges 0.95 per cent and has risen 89 per cent over the past year. Another, the iShares MSCI World Energy Sector exchange-traded fund, which tracks the performance of oil companies around the world, charges 0.25 per cent, and has risen 82 per cent over the past 12 months.
While leaders take to the stage to persuade governments to boost their green agendas, investors may need a bigger push as they reap the rewards of buying into fossil fuels.
Telegraph, London
