The booming interest in shale oil and gas has attracted the attention of Euro Stars A-rated manager Kenneth Stuzin but the veteran investor is only seeking to cautiously boost his indirect exposure.
In an investor update, Stuzin said the rising ‘energy revolution’ in the United States is having an increased bearing on his strategy, the $835 million Brown Advisory US Equity Growth fund.
‘While we do not own North American natural gas companies, we do own global oil services companies, whose customers are sometimes involved in North American natural gas. This is a central issue for us and frankly an opportunity for us as well,’ said Stuzin.
The increased growth of the shale sector has seen Stuzin seek to add some indirect exposure to the sector through an investment in water hygiene and technology firm Ecolab (2.07%).
He said this company could become a market leader in terms of fracking and processing natural gas.
‘It is their fast growing energy business, which provides specialist chemical-based solutions in the extraction and processing of the industry that was a particular interest for us. This is a play in what is happening in the natural gas, fracking business.’
Stuzin stressed that this does not mean he is focusing his entire 33-stock portfolio on shale as a whole, as he views the market as suffering from oversupply and in need of further sophistication.
Energy is currently one of Stuzin’s largest sector overweights in his fund, accounting for 8.9% compared to 4% in the Russell 1000 Growth index.
In the fund, Stuzin owns conservative US energy stocks such as, Core Labs (2.69%), FMC Technologies (2.97%) and Schlumberger (3.21%).
Each stock, Stuzin said, had suffered from compression in 2012 and he said they had lost around 6-7% on each of these three individual stocks. However, he remains bullish.
‘The stocks we own in energy generate less than 10% of their earnings exposed to North American natural gas sector. We maintain the notion that these are exactly the kind of stocks we ought to be owning.’
‘The market compression that has come about, frankly for a thematic reason, really has nothing to do with the long-term fundamentals.’
Within his energy allocation, Stuzin sold out of Canadian Natural Resources in November due to a period of underperformance. This followed two explosions within the extraction business of the oil sands business over the course of the year.
The Brown Advisory US Equity Growth fund has returned 41.8% in the three years to the end of December 2012. Over this period, its Citywire benchmark, the S&P 500 TR, rose 36.3%.