Tag Archives: middle-east

New Energy Fund Seeks To Capitalize On Sector Dislocations

The North American energy landscape is changing rapidly, as the shale boom that led to record production and U.S. inventory levels is being followed by a Middle East oil conflict that is driving oil prices vastly lower. In response, OppenheimerFunds has launched the Oppenheimer SteelPath Panoramic Fund, which is designed to capitalize on the industry tumult with a long-term, value-oriented approach to investing in all “links” in the North American energy value chain. “We are investing in companies that are best positioned to gain long-term advantage from these shifts and deliver relative performance across different commodity price scenarios,” said Brian Watson, CFA and Director of Research at Oppenheimer SteelPath, as well as Senior Portfolio Manager for the fund, in a statement. “Our long-term investment view allows us to benefit from expected dislocations in the evolving global energy market.” Targeting More Volatility, Better Returns Mr. Watson also said he thinks the Oppenheimer SteelPath Panoramic Fund will have more volatility than the firm’s other midstream energy-focused funds, but he also expected it to generate better returns. That’s because the fund attempts to identify value by focusing strictly on small- and mid-cap companies, which tend to be more volatile, over large-cap international oil-and-gas juggernauts. In Mr. Watson’s view, this approach should allow the fund’s investors to best benefit from the “U.S. energy revolution.” “The North American energy landscape has transformed, creating a generational shift in relative competitive advantage as well as new opportunities across the entire energy value chain,” said OppenheimerFunds CIO Krishna Memani. “Brian and his team are using their extensive knowledge of the energy sector to identify durable investment opportunities for our clients.” The energy “value chain” includes: “Upstream” companies that explore for and produce oil, natural gas, and other hydrocarbons; “Midstream” companies that gather, transport, store, distribute, or market energy products; and “Downstream” companies that process, treat, or refine hydrocarbons. Total Return Focus The Oppenheimer SteelPath Panoramic Fund, which went live on November 18 of last year, will invest in all three links of this chain, as well as other energy beneficiaries – chemicals and materials manufacturers, engineering and production companies, etc., – that stand to benefit from energy-related activities. The new fund’s stated objective is to provide total return. Its shares are available in A (MUTF: EESAX ), C (MUTF: EESCX ), R (MUTF: EESRX ), Y (MUTF: EESYX ), and I (MUTF: EESIX ) classes, with respective net-expense ratios of 1.55%, 2.30%, 1.80%, 1.30%, and 1.10%. The minimum initial investment for Class I shares is $5 million – the minimum for all other classes is $1,000. For more information, visit the fund’s web page .

On Currencies That Are A Store Of Value, But Maybe Not For Long

Picture Credit: Dennis S. Hurd I get letters from all over the world. Here is a recent one: Respected Sir, Greetings of the day! I read your blog religiously and have gained quite a lot of practical insights in financial field. Your book reviews are very helpful and impartial. I request you to write blog post on dollar pegs in Middle East and under what conditions those dollar pegs would fall. If in case you cannot write about it, kindly point me to some material which can be helpful to me. Thanks for your valuable time. Now occasionally, some people write to me and tell me that I am outside my circle of competence. In this case, I will admit I am at the edge of that circle. But maybe I can say a few useful things. Many countries like pegging their currency to the US dollar because it provides stability for business relationships as businesses in their country trade with the US, or, with other countries that peg their US dollar, or, run a dirty peg of a controlled devaluation. Let me call that informal group of countries the US dollar bloc [USDB]. The problem comes when the country trading in the USDB begins to import a lot more than they export, and in the process, they either liquidate US dollar-denominated assets or create US dollar-denominated liabilities in order to fund the difference. Now, that’s not a problem for the US – we get a pseudo-free pass in exporting claims on the US dollar. The only potential cost is possible future inflation. But, it is a problem for other countries that try to do so, because they can’t manufacture those claims out of thin air as the US Treasury does. Now in the Middle East, it used to be easy for many countries there because of all the crude oil they produced. Crude oil goes out, goods and US dollar claims come in. Now it is reversed, as the price of crude is so low. Might this have an effect on the currencies of the Middle East. Well, first let’s look at some currencies that float that are heavily influenced by crude oil and other commodities: Australia, Canada, and Norway: Click to enlarge Commodity Currencies As oil and commodities have traded off so have these currencies. That means for pegged currencies, the same stress exists. But with a pegged currency, if adjustments happen, they are rather large violent surprises. Remember the old saying, “He lied like a finance minister on the eve of the devaluation,” or Monty Python, “No one expects the Spanish Inquisition!” That’s not saying that any currency peg will break imminently. It will happen later for those countries with large reserves of hard currency assets, especially the dollar. It will happen later for those countries that don’t have to draw on those reserves so rapidly. Thus, my advice is threefold: Watch hard currency reserve levels and project future levels. Listen to the rating agencies as they downgrade the foreign currency sovereign credit ratings of countries. When the ratings get lowered and there is no sign that there will be any change in government policy, watch out. Watch the behavior of wealthy and connected individuals. Are they moving their assets out of the country and into hard currency assets? They always do some of this, but are they doing more of it – is it accelerating? Point 3 is an important one, and is one seemingly driving currency weakness in China at present. US Dollar assets may come in due to an excess of exports over imports, but they are going out as wealthy people look to preserve their wealth. On point 2, the rating agencies are competent, but read their write-ups more than the ratings. They do their truth-telling in the verbiage even when they delay downgrades longer than they ought to. Point 1 is the most objective, but governments will put off adjustments as long as they can – which makes the eventual adjustment larger and more painful for those who are not connected. Sadly, it is the middle class and poor that get hit the worst on these things as the price of imported staple goods rise while the assets of the wealthy are protected. And thus, my basic advice is this: gradually diversify your assets into ones that will not be harmed by a devaluation. This is one where your government will not look out for your well-being, so you have to do it yourself. As a final note, when I wrote this piece on a similar topic , the country in question did a huge devaluation shortly after it was written. Be careful. Disclosure: None.

Middle East Stocks Crash On Iran Sanctions: ETFs To Watch

After China and oil issues, developments in the Middle East are posing further hindrance to the stock market that may worsen the global rout this week. This is especially true following the historic deal between Iran and the world major powers that lifted oil sanctions imposed on the former in late 2000. The relaxation would add a fresh stock of oil to the already oversupplied global market as Iran is expected to increase its crude oil exports by half a million barrels a day immediately and a million barrels a day within a year of lifting the ban. Notably, Iran is the world’s fourth-largest reserve holder of oil with 158 billion barrels of crude oil, according to the Oil & Gas Journal . The country also accounts for almost 10% of the world’s crude oil reserves and 13% of reserves held by the Organization of the Petroleum Exporting Countries (OPEC). The liftoff spread panic in the Middle East and crashed all the seven Gulf stock markets. In fact, the stocks saw a bloodbath wiping out more than £27 billion from the Middle East markets in Sunday’s trading session (read: Guide to Middle East ETF Investing ). The Bloomberg GCC 200 Index, which tracks 200 of the six-nation Gulf Cooperation Council’s biggest companies, plunged to the lowest level in almost seven years. Saudi Arabian stocks fell 5.4%, Kuwait and Qatar stock exchanges experienced 3.1% and 4.6% drop, respectively, while stocks in Qatar saw an enormous 7% decline on the day. ETFs to Watch The terrible trading in the Gulf stocks will have a big impact in the ETF world as well. In particular, the Market Vectors Gulf States Index ETF (NYSEARCA: MES ) , the WisdomTree Middle East Dividend Fund (NASDAQ: GULF ) , the iShares MSCI Qatar Capped ETF (NASDAQ: QAT ) and the iShares MSCI UAE Capped ETF (NASDAQ: UAE ) should be on investor’s watch list of the funds that are likely to be badly hurt by the Iran sanctions liftoff. From a year-to-date look, these funds shed 13.7%, 10.2%, 13.4% and 9.2%, respectively. MES: The fund provides exposure to 60 stocks that generate at least 50% of their revenues in the Gulf Cooperation Council (GCC) region by tracking the Market Vectors GDP GCC Index. About one-third portfolio is allotted to firms in United Arab Emirates, followed by Qatar (25.9%) and Kuwait (19.3%). The product is often overlooked by investors as depicted by its AUM of $8 million and average daily volume of about 3,000 shares. The fund charges a higher annual fee of 99 bps from investors. GULF: This ETF follows the WisdomTree Middle East Dividend Index, which measures the performance of dividend-paying companies in the Middle East. It holds a basket of 70 stocks with the largest exposure of at least 23% to firms in Qatar, Kuwait and United Arab Emirates. The fund has amassed $22.8 million in its asset base while trades in paltry volume of 9,000 shares a day. Expense ratio comes in at 0.88% (see: all the Africa-Middle East Equity ETFs ). QAT: This fund provides exposure to 29 Qatari stocks by tracking the MSCI All Qatar Capped Index. It has accumulated $40.5 million in its asset base while see volume of 7,000 shares a day on average. QAT charges 64 bps in fees per year. UAE: This ETF targets the United Arab Emirates stock market and follows the MSCI All UAE Capped Index. Holding 33 stocks in its basket, it has been able to manage $23.6 million in AUM so far and charges 64 bps in annual fees. Volume is light at around 10,000 shares a day on average. What Lies Ahead? Oil price, which contributes more than 80% of the Middle East revenues, has fallen 20% this year and over 70% since late 2014. This trend will likely persist in the months ahead given unfavorable demand/supply dynamics. In fact, a number of investment banks are projecting oil price to drop as low as $10 per barrel, the lowest since 1998. This is because oil production has risen worldwide with OPEC continuing to pump near-record levels, and higher output from the likes of U.S., Iran and Libya. Additionally, a strengthening U.S. dollar backed by a rate hike is making dollar-denominated assets more expensive for foreign investors and thus dampening the appeal for oil. On the other hand, demand for oil across the globe looks tepid given slower growth in most developed and developing economies. In particular, persistent weakness in the world’s biggest consumer of energy – China – will continue to weigh on the demand outlook. Further, the four products detailed above have a bottom Zacks Rank of ‘4’ (Sell) or ‘5’ (Strong Sell), suggesting that these will continue to underperform in the months ahead. All these suggest that investors should avoid investing in the Middle East until and unless oil prices stabilize or rebound. Link to the original post on Zacks.com