Data from FE Analytics shows that the oil and gas sector has also been one of the worst performers over five years and even over 10, with the past few years dragging down its longer term track record.
Performance of indices over 3yrs
Source: FE Analytics
Some managers are starting to get interested in the sector on valuation grounds: this morning Martin Walker of the Invesco Perpetual UK Aggressive fund said he has been raising his weighting to it over the past year.
John Dodd, manager of the £93m Artemis Global Energy fund, says he thinks the sector should recover as appetite for risk returns, and corporate activity is an early sign of this.
There is always a lot of interest from retail investors in the sector, and when AIM stocks were made eligible for inclusion in an ISA the majority of the most popular stocks were oil and gas related.
Dodd says the principal reason for this is greed: investors treat oil and gas companies as a punt, and look for whatever can make them the most money.
However, the stocks most retail investors are buying are the wrong ones, he warns. Here he gives his take on some of the stocks making the headlines and his alternative picks.
Gulf Keystone Petroleum – SELL
This was the most-bought stock in ISAs after AIM stocks were made available in the wrappers, as FE Trustnet covered at the time.
It is making the headlines because it has the rights to a huge basin in the Kurdistan region of Iraq. It is very popular with retail investors and the share price has been very volatile.
Its price spiked violently when it won a court case in September over ownership rights of its reserves, but the gains have already been retracted.
Performance of stock in 2013
Source: FE Analytics
Dodd has strong views on the management of the company which means he won’t buy in.
"We don’t like the management: we think they are running the business for themselves," he said. "Todd Kozel paid himself £20m last year – for what?"
Kozel’s pay package is not the first controversy to engulf him.
"They [retail investors] love bad boys and Todd was outed by his ex-wife for spending his money on strip clubs," Dodd added.
He prefers Genel, which also has reserves in the same region but is run by Tony Hayward, former head of BP.
Dodd has a good working relationship with Hayward who he says often comes into his office to discuss the business.
"We wanted one of the most able and well-recognised people to run an energy business," he said.
Performance of stock in 2013
Source: FE Analytics
Shares are 20.58 per cent up for the year, according to FE Analytics data.
Rockhopper – BUY (with reservations)
Rockhopper is one of the exploration companies drilling in the sea off the Falkland Islands.
Dodd says he and co-manager Richard Hulf – a petroleum engineer by training – are unconvinced that there are enough extractable reserves in the area to make it commercial, but there is another good reason for holding the company.
"We do not like the basin, but we do hold it in [investment trust Artemis] Alpha because of the huge amount of cash on the balance sheet," he said. "We are hoping they will return it to shareholders."
Rockhopper is flush with cash after signing a farm-in deal with Premier which will see the latter participate in the drilling and extraction process.
As for basins with better prospects, Dodd says he likes the east coast of Thailand in particular.
Coastal Energy is exploring down there and has had success with seven out of its eight last drills, he says.
Performance of stocks in 2013
Source: FE Analytics
The share price has yet to respond, however, and has lost 10.61 per cent since 2013.
IGas – BUY
Dodd is unequivocally positive about the prospects for shale gas in the UK; IGas is currently the only quoted option for investors who want to access this story – barring buying shares in an Australian company which holds part of Cuadrilla.
Shares have lost 16.49 per cent in 2013, however, as investors have worried about the scale of protests against the development.
Performance of stock in 2013
Source: FE Analytics
Dodd says he is very confident that UK shale gas will be commercial and successful, and he points out that oil has been drilled a mile or two away from the Sussex site that caused all the controversy.
Retail investors are right to tuck this one away for the future, he says, although it could take some time to pay off.
