Three investment trusts to play the rising oil price
Oil prices are heading towards the $80 mark as armed conflict between Iranian and Israeli forces follows hot on the heels of the US president Donald Trump’s decision to exit the Iran nuclear deal.
Investors looking to benefit from the oil price surge have the option of investing in individual companies, although this does come with substantial exposure to the risk of these individual companies enduring operational failures.
It is also possible to play the oil price directly using exchange-traded products, however the long-term returns from these instruments can be affected by the quirks of the oil futures market.
An alternative is to look at the funds and investment trusts which invest in numerous energy stocks. The best example of a trust with a specific focus on the oil sector is Riverstone Energy (RSE).
Founded in 2000, Riverstone completed a £760m stock market listing in 2013 with several industry heavyweights as directors.
The £1.29bn trust trades at a 16.9% discount to net asset value (NAV) at its current share price of £12.64.
The portfolio is very concentrated with 14 active investments. The focus is on Western Canada and the Permian basin which spans New Mexico and Texas. Its only listed holding is US firm Centennial.
Its NAV has increased by more than 50% since inception but weak sentiment towards the sector has seen its shares struggle to keep pace.
An alternative investment trust relevant to the oil space is BlackRock Commodities Income (BRCI). However, it isn’t a pure play on the black stuff as only around 40% of the portfolio is invested in the oil and gas space with the remainder in miners.
Managed by Olivia Markham and Tom Holt, performance has been patchy with the NAV only up around 3% in the last five years.
Unlike Riverstone it does, as its name implies, pay a dividend. At 81.7p the BlackRock trust trades at a 5.5% discount to net asset value and is on a trailing dividend yield of 4.9%.
Oil prices can be volatile and, for this reason, you might feel more comfortable considering an investment trust with a broader mandate which includes exposure to oil and gas companies as well as other sectors.
One possibility, a current constituent of our Great Ideas portfolio, is Merchants Trust (MRCH).