Are retail investors moving away from oil and gas?

Written by Rebecca O'Connor on 12th November 2015

Could oil and gas be losing favour with some of the UK’s most celebrated retail fund managers?

We only ask because an analysis of the top ten most-traded funds in October, according to the Share Centre, has revealed that only one of the funds – the Invesco Perpetual High Income Fund – has an oil and gas major in its top ten fund holdings (it invests a small % in BP).

1 CF Woodford Equity Income fund
2 AXA Framlington Biotech fund
3 Fundsmith Equity fund
4 Polar Capital Healthcare Opportunities fund
5 Old Mutual UK Mid-Cap fund
6 Jupiter Global Managed fund
7 CF Miton UK Value Opportunities fund
8 Marlborough UK Micro-Cap fund
9 Newton Asian Income fund
10 Invesco Perpetual High Income fund

With that exception, none of the funds listed above invest in oil and gas in their top ten holdings. Some have shunned the sector completely and are even ‘carbon positive’, investing in clean energy and energy solutions, rather than fossil fuel generation.

This suggests that the long-term sectoral slump, with the cost of oil halving over 12 months, is affecting investment decisions – reducing the flow of new money into oil and gas and encouraging a consideration of the financial merit of alternatives.

For example, among the top ten holdings in Neil Woodford’s CF Woodford Equity Income Fund is Halosource, a clean technology developer to purify water that is also listed on the Social Stock Exchange, and Utilitywise, an energy and water management services business that helps companies become more energy efficient. 

Woodford does invest in Drax, the UK’s biggest power plant, however this is in the process of switching over to biomass rather than coal.

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Whisper it, but the fund, run by the UK’s most successful fund manager, is actually pretty forward-looking on the values front, although it is not called an ethical fund. Shhh!! Don’t tell.

The Fundsmith Equity Fund, run by City celebrity Terry Smith who is known for adopting a deliberately unethical position, invests in Unilever, which has won awards for its commitment to sustainability (although this fund is clearly not values-led for other reasons, see below).

The environmentally-savvy might still wish to avoid CF Miton UK Values Opportunity Fund, which despite not investing in oil and gas, is heavily weighted towards paper and plastic packaging manufacturing.

Otherwise, the funds have in common an emphasis on companies finding solutions or designing technology for healthcare, telecomms and financial services technology, all to the good.

But those of you who generally want to invest in better things will beware: while carbon-intensive industries appear to be out of favour at the moment, some of the biggest holdings will still ring alarm bells if you care about:

  • Animal rights issues – some of the biggest holdings are in biotech. Axa Framlington Biotech and Polar Capital Healthcare Opportunities are big on pharma. On the other hand, if you see their drugs developments as helping people with illness, they look quite ethical, but it is a controversial one.
  • Smoking: the Fundsmith Equity Fund loves tobacco – so too does the Invesco Perpetual High Income Fund.
  • Sugar consumption, obesity and diabetes – you would also do well to avoid the Fundsmith Equity Fund – which lists Pepsico and Dr Pepper Snapple in its top ten.