Which funds stand to benefit from a rising oil price?

Mould-Russ-AJBell-2016-CUTA BlackRock tracker and Schroders equity income fund are among the investment options that could benefit from a rising oil price from this week’s Opec agreement, according to AJ Bell.

Brent crude rose 2.4 per cent to $53.08 a barrel this morning as Opec agreed to cut oil production in its first deal since 2008.

The oil price had already soared 8.8 per cent yesterday in anticipation of the meeting.

AJ Bell investment director Russ Mould says oil major firms are one logical way of getting exposure to any sustained rally in the price of Brent crude.

He cites the BlackRock UK 100 Equity tracker and the SPDR FTSE All Share ETF with a 11.7 per cent and 13.1 per cent weighting toward energy stocks.

BP and Shell, which both rallied more than 3 per cent in early trading today, feature in both funds’ top five holdings.

Mould adds: “BP and Shell are responding favourably to the higher oil price as the higher crude goes the safer their fat dividend yields become – both offer earnings cover below 0.5 times in 2016 and of barely one times in 2017 when a ratio of at least two times is ideal.

“BP currently offers a 2017 dividend yield of 6.7 per cent and Shell 7.2 per cent, based on consensus analysts’ forecasts.”

On the active management side, Mould suggests Matt Hudson’s Schroder UK Alpha Income fund, with oil majors making up 13 per cent of the fund.

Martin Cholwil’s Royal London UK Equity Income fund is another option.

Outside oil major equities, Mould suggests energy-themed funds such as the US Energy Infrastructure ETF, with a basket of 23 American energy pipeline, storage and logistics firms and with a 0.25 per cent charge.

Oil trackers and oil stocks, despite being riskier choices, are also possibilities.

ETFS Crude Oil ETC tracks the US benchmark, West Texas Intermediate, while ETFS Brent Crude tracks the equivalent European oil benchmark.

Both trackers follow a basket of oil futures prices, not the spot price, and both use synthetic replication.

“Besides movements in the oil futures, investors are also exposed to the roll yield and collateral yield for their total return on investment,” Mould says.