Investors thirsty for shale profits

US shale gas has been hitting the headlines and is the next big thing in the US, as production rises, investors are exploiting the latest opportunity.

Tana Focke and Robert Royle, managers of the Smith & Williamson £76m North American fund, remain positive on natural resources, particularly shale.

Focke says: “We are very upbeat on shale and we believe in the longer term this is one of the reasons to invest in the US. This is not only for strong balance sheets but also for good manufacturing and reliable workforce and particularly the benefit they are going to have of cheap energy.”

She adds: “If it works out the way we think it will work out, there will be a huge, huge advantage to investors. Not necessarily tomorrow, but within the next five to 10 years.”

Royle says: “The US is now an exporter of refined fuels, which is the first time that has happened in 40 years.”

As well as owing a refinery in the fund, Focke says chemical companies such as Methanex, the world’s largest supplier of methanol, are a good way of playing the story.

Frances Hudson, global thematic strategist, Standard Life Investment, howevers remains sceptical of the shale gas and oil boom.

She says: “I’m not sure it is attractive to investors. Shale gas is being produced on a commercial basis and has been for some time, so if you are seeking to invest in it, given the very low prices for natural gas in the US, you would not be buying the gas producers.”

Instead she says investors might look to some of the satellite industries because there is not so much excess supply and earnings may be more sustainable. “With the gas producers it is probably already in the price,” she says.

Hudson notes that according to the International Energy Authority shale oil production is currently about 1m barrels a day. She says: “The trouble with forecasts is they are never always right, but the IEA is a reasonably authoritative source, they estimate 1m barrels now but their forecasting 3m barrels a day and that is what I think is underpinning this assertion that the US will be the biggest producer of oil.”

Meanwhile she adds that despite there currently being lots of capacity for fraking – extracting gas from shale rocks – it could be the US runs out more quickly than they expect.