Global Energy: what do OPEC cuts
mean for the oil market?
October, 2016
Tim Guinness (Co-manager)
Will Riley, CA (Co-manager)
Jonathan Waghorn (Co-manager)
For Registered Investment Professional Use Only
Guinness Global Energy: summary
•
OPEC cuts: announcement of first supply cuts since 2008, to put a floor under the
oil price. Cuts likely to come from Saudi, Kuwait & UAE
•
Oil market remains oversupplied, but in better balance than at start of the year...
….moving to deficit in 2017
•
We consider the oil price to be on a journey back to $70/bbl
•
US natural gas market: has moved into undersupply
•
Energy equities have outperformed in 2016: rebound still leaves the sector a long
way from historical normalised valuation levels
1
OPEC: first production cut announced since 2008
•
OPEC announced on September 28th 2016 that they had agreed to cut production levels
•
OPEC have opted for a new production limit of 32.5-33.0m b/day, a reduction of 0.5-1.0m
b/day versus current supply. To be ratified at OPEC’s November meeting
•
We expect the lion’s share of the cut to be borne by Saudi, Kuwait & UAE
Saudi, Kuwait and UAE production (k b/day)
000s b/day
17,000
16,000
Over production of 3.8m b/day
relative to long run average
15,000
14,000
13,000
2
Average 1992-2015
12,000
11,000
10,000
9,000
OPEC production (m b/day)
('000 b/day)
Saudi
Iran
UAE
Kuwait
Neutral zone
Nigeria
Venezuela
Angola
Libya
Algeria
Qatar
Ecuador
OPEC-11
Iraq
OPEC-12
Source: Bernstein, IEA, Guinness Funds (data as at end of August 2016)
31-Dec-10
8,250
3,700
2,310
2,300
540
2,220
2,190
1,700
1,585
1,260
820
465
27,340
31-Aug-16
10,600
3,640
3,070
2,910
0
1,460
2,140
1,760
280
1,110
650
550
28,170
Change
2,350
-60
760
610
-540
-760
-50
60
-1,305
-150
-170
85
830
2,385
29,725
4,350
32,520
1,965
2,795
OPEC: why have they announced a production cut?
•
OPEC’s statement, accompanying the announcement of cuts, says:
“In the last two years… Oil-exporting countries’ and oil companies’ revenues have
dramatically declined, putting strains on their fiscal position and hindering their economic
growth. The oil industry faced deep cuts in investment and massive layoffs, leading to a
potential risk that oil supply may not meet demand in the future, with a detrimental effect
on security of supply.”
OPEC (selected) fiscal breakeven oil prices 2016 ($/bbl)
•
Saudi are running highest
budget deficit within the G20
•
Cuts to Saudi ministerial salaries
of 20% announced in September
•
Payment delays to contractors
in Saudi being reported
•
Financial pressures even greater
in ‘tier 2’ OPEC (e.g. Iraq;
Nigeria; Venezuela; Ecuador)
120
90
60
30
0
Source: Bernstein, IEA, Guinness Atkinson, Oct 2016
3
Oil supply/demand: OECD inventories over top of 10 year range
4
• The net supply/demand effect in 2014 was a loosening of OECD inventories
• In 2015, OECD inventories moved above the top of the ten year range…
….the move implied average oversupply of c.0.7m b/day
• In the six months to the end of July, the oversupply has fallen to 0.2m b/day
OECD oil inventories (million bbls)
OECD stocks (m barrels)
3,200
3,000
2,800
2,600
2,400
2005 - 2014 s pread
2014
Jan Feb Mar Apr May Jun
2015
2016
Jul Aug Sep Oct Nov Dec
Source: IEA Oil Market Report (published Sept 2016; data to end of July 2016); Guinness Atkinson
OPEC: Inventories - parallel with 1998-99 down cycle
• In the 1998/99 downcycle, oil inventories peaked at around 300m above average…
…. very similar to magnitude of oversupply in 2015/16
• Oil price recovery and end of 1998 coincided with inventories starting to fall
OECD oil inventories 1994-1999 (million bbls)
OECD stocks (m barrels)
3,000
2,800
2,600
2,400
1994 - 1997 spread
1998
1999
2,200
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: IEA Oil Market Reports (1994-1999); Guinness Atkinson
5
Inventories – the path to a tighter market in 2017
6
2016 global oil market balance
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
Q4 2016
wildcards:
• Libya
Over/(under) OPEC supply
mn
(ex-Iran)
b/day supply at
start of 2016
Iranian
supply
Global oil
demand
non-OPEC US onshore Over/(under)
supply (exsupply supply at end
US onshore)
2016
2017 global oil market balance (assuming OPEC deal is adhered to)
1.0
0.5
0.0
-0.5
-1.0
-1.5
2017
wildcards:
mn
Over/(under) OPEC supply
b/day supply at
(ex-Iran)
start of 2017
Source: Guinness Atkinson, Sept 2016
Iranian
supply
Global oil
demand
non-OPEC US onshore Over/(under)
supply (exsupply supply at end
US onshore)
2017
Note: the information shown in the above charts is a
Guinness Atkinson forecast
• Libya
• Nigeria
• US onshore
Near term oil demand: world oil demand up 1.4m b/day in 2016
•
•
•
•
2016 world oil demand forecast to be around 8.9m b/day up on pre-recession peak (2007)
Non-OECD demand has grown unchecked through the oil price spike and financial crisis of 2008/09
Demand growth in 2015 of 1.8m b/day highest since 2010, spurred on by low price
Estimates for 2016 and 2017 indicate healthy demand growth of 1.3m and 1.2m b/day
Global oil demand (m b/day)
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
OECD demand
2016
2017
IEA
IEA
North America
25.7
25.8
24.5
25.8
24.5
23.7
24.1
24.0
23.6
24.1
24.1
24.4
24.6
24.7
Europe
15.6
15.7
15.7
15.6
15.5
14.7
14.7
14.3
13.8
13.6
13.5
13.7
13.8
13.8
Pacific
8.8
8.9
8.7
8.7
8.3
8.0
8.2
8.2
8.5
8.3
8.1
8.1
8.0
8.0
Total OECD
50.1
50.4
48.9
50.1
48.3
46.4
47.0
46.5
45.9
46.0
45.7
46.2
46.4
46.5
0.3
-1.5
1.2
-1.8
-1.9
0.6
-0.5
-0.6
0.1
-0.3
0.5
0.2
0.1
Change in OECD demand
NON-OECD demand
FSU
3.8
3.9
4.0
4.0
4.2
4.0
4.1
4.4
4.6
4.7
4.9
4.9
5.0
5.1
Europe
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
China
6.4
6.7
7.2
7.6
7.7
7.9
8.9
9.3
9.9
10.4
10.7
11.4
11.6
11.9
Other Asia
9.0
9.0
9.3
9.8
9.9
10.3
10.8
11.1
11.3
11.7
12.0
12.5
13.1
13.6
Latin America
4.9
5.0
5.2
5.3
5.6
5.7
6.1
6.2
6.5
6.6
6.8
6.8
6.7
6.7
Middle East
5.5
5.9
6.1
6.4
6.7
7.1
7.3
7.5
7.9
7.9
8.0
8.2
8.3
8.5
Africa
2.8
2.9
2.9
3.3
3.3
3.4
3.5
3.5
3.8
3.9
4.0
4.1
4.2
4.4
Total Non-OECD
33.1
34.1
35.4
37.1
38.1
39.1
41.4
42.7
44.8
45.9
47.2
48.6
49.7
50.9
1.0
1.3
1.7
1.0
1.0
2.3
1.3
2.1
1.1
1.3
1.4
1.1
1.2
83.8
1.3
85.1
1.3
87.2
2.1
86.4
-0.8
85.5
-0.9
88.4
2.9
89.2
0.8
90.7
1.5
91.9
1.2
92.9
1.0
94.7
1.8
96.1
1.4
97.3
1.2
Change in non-OECD demand
Total Demand
Change in demand
82.5
Source: IEA Oil Market Report September 2016
7
Near term oil demand: US demand picking up
•
•
•
•
US oil demand fell from c.20m b/day to c.19m b/day, between 2001 and 2012
Lower domestic oil and gasoline prices now driving positive US oil demand growth
Retail gasoline is still less than $2.50/gallon, with Brent oil prices at $50/bbl
We would expect demand growth to stay robust as a result of weak oil prices
US oil demand, yoy growth
US retail gasoline prices (US$/gallon)
10%
4.5
8%
Source: Bloomberg LP; Guinness Atkinson (data as at end of Sept 2016)
Mar-16
Mar-15
Mar-14
Mar-13
1.5
Mar-12
-10%
2.0
Mar-11
-8%
2.5
Mar-10
-6%
Mar-09
-4%
3.0
Mar-08
-2%
Mar-07
0%
3.5
Mar-06
2%
Mar-05
4%
4.0
Mar-04
US retail gasoline price (US$/gallon)
6%
Aug-2011
Oct-2011
Dec-2011
Feb-2012
Apr-2012
Jun-2012
Aug-2012
Oct-2012
Dec-2012
Feb-2013
Apr-2013
Jun-2013
Aug-2013
Oct-2013
Dec-2013
Feb-2014
Apr-2014
Jun-2014
Aug-2014
Oct-2014
Dec-2014
Feb-2015
Apr-2015
Jun-2015
Aug-2015
Oct-2015
Dec-2015
Feb-2016
Apr-2016
Jun-2016
Aug-2016
% growth in demand (yoy, 4wk average)
8
Near term oil demand: Chinese oil demand still looks fine
China 2015 apparent oil demand up 6.5% vs 2014 (strongest yoy growth since 2011)
IEA estimates for 2016 and 2017 indicate 0.3m b/day pa growth on average
China’s Strategic Petroleum Reserve was estimated to be 235mn bls in early 2016
The rate of build appears to be around 100-200k b/day….
….This represents 30 days of oil import coverage; the target is 90 days by 2020
China total vehicle sales
Source: Bloomberg LP; Credit Suisse; Guinness Atkinson (data as of end Sept 2016)
12 month MAV
2016
2015
2014
2013
2012
30.25
2011
May-16
May-15
May-14
May-13
May-12
May-11
May-10
May-09
7.57
million/year
12 month MAV
Chinese total vehicle sales
36
32
28
24
20
16
12
8
4
0
2010
Chinese oil imports
2009
9
8
7
6
5
4
3
2
1
0
May-08
mn bbls/day
China oil imports
2008
•
•
•
•
9
Non-OPEC oil supply: US onshore production and rig count
US onshore (ex Alaska and GoM) oil supply was 6.86m b/day in Feb 2016
US onshore oil supply peaked in Apr 2015 at 7.65m b/day
US onshore oil supply was down 0.6m b/day in 2015 and is heading down further, we think
The US oil directed rig count has fallen from over 1,600 rigs to 330 rigs at end June 2016
The rig count in key oil shale basins has fallen by 60%-70%
US onshore oil production vs oil rig count (table shows US onshore total rig count by shale basin
8,000
1,800
7,500
1,600
7,000
1,400
6,500
1,200
Onshore oil-directed
drilling rig count
6,000
1,000
5,500
800
5,000
600
4,500
4,000
400
Onshore US crude oil production
(ex Alaska)
3,500
200
2016
2015
2014
2013
2012
2011
2010
0
2009
3,000
Onshore US oil production
Kessler Energy
Credit Suisse
Bernstein (est $40 scenario)
BMO
oil rig count
Source: EIA (oil production to June 2016); Bloomberg (oil rig count) as 10 September 2016
Rig count
Oil production (kb/d)
•
•
•
•
•
10
Non-OPEC oil supply: US oil production in decline
11
• US onshore oil production peaked in April 2015
•
•
Most recent data (June 2016) shows decline of around 0.8m b/day (year-on-year)
We expect US onshore oil production to continue declining in to the end of 2016
US onshore oil production (kb/day)
Actual production and annual change
US onshore oil production (kb/day)
Potential future production sensitivity
US onshore oil production
'000s b/day
'000s b/day
8,000
1,500
7,500
1,200
817
1,568
(432)
(579)
300
16%
26%
-6%
-8%
5%
-600
Average 2012
Average 2013
Average 2014
Average 2015
Average 2016
Average 2017
4,690
5,667
6,867
7,410
6,736
6,623
977
1,200
543
(674)
(113)
21%
21%
8%
-9%
-2%
-900
Peak, April 2015
7,613
(924)
(794)
-13%
-12%
600
300
6,000
0
5,500
-300
US onshore oil production (LH axis)
5,000
US onshore oil production (year-on-year change, RH axis)
Data as at end July 2016
Source: Bloomberg; EIA; Guinness Atkinson
Sep-2016
Jun-2016
Mar-2016
Dec-2015
Sep-2015
Jun-2015
Mar-2015
Dec-2014
Sep-2014
Jun-2014
Mar-2014
Dec-2013
Sep-2013
Jun-2013
4,500
Change
Change (%)
(kb/d)
5,145
5,962
7,530
7,098
6,519
6,819
6,500
Exit
Exit
Exit
Exit
Exit
Exit
US onshore oil
production (ex GoM
and Alaska) (kb/d)
2012
2013
2014
2015
2016
2017
900
7,000
kb/d
Decline to date
Decline at Dec 2017
Assumes an average 30kb/d of oil production decline per month to
end December 2016 and June 2017 and an average 25kb/d growth
through 2017
Non-OPEC oil supply (ex-US): upstream capex has fallen sharply
• Global upstream capex fell over 20% in 2015 and will see similar falls in 2016
• This is a larger and longer decline than those seen in 2008/2009 and 1998/1999
• The effect is twofold:
1. The ‘decline rate’ on existing production starts to increase
2. The rate of new non-OPEC project start-ups slows
• There is a time delay between oil prices falling and non-OPEC production reacting
Decline rates on current Brazil oil production
140
40%
120
30%
100
20%
80
10%
60
0%
40
-10%
20
-20%
0
Global upstream capex
Oil price (Brent ($/bbl)
-30%
Upstream CAPEX (year/year change %)
Oil price (Brent $/bbl)
Year over year change in global upstream capex
Data to end of 1Q 2016
Source : Simmons International, Sept 2016
12
Non-OPEC oil supply (ex-US): production flat to declining
• Non-OPEC supply (ex-US) expected to be flat in 2017/18, then decline in 2019/20
• Biggest sources of net new supply and decline to 2020:
•
•
•
•
•
Brazil (+1.2m b/day)
Canada (+0.4m b/day)
UK (+0.2m b/day)
Russia (-0.6m b/day)
China (-0.7m b/day)
Top 10 non-OPEC producers (ex-US): forecast production to 2020
1,500
1,000
500
1,122
1,112
1,139
865
750
539
-398
-500
-1,000
-1,500
K b/day
-1,297
2015
2016E
Natural decline
Source : Tudor Pickering Holt, Guinness Atkinson, Sept 2016
-1,123
-1,157
-1,100
-1,046
2017E
2018E
2019E
2020E
New projects
Net production growth/decline
13
Economics: marginal cost of supply has historically defined prices
Economics of crude oil
Economics of US natural gas
16
Cash cost of supply
10
8
2016
2015
2014
2013
2012
2011
2010
2009
2008
0
2007
0
2006
2
2005
20
2004
4
2003
6
40
Source: Bernstein, Guinness Atkinson, (data as at end Sept 2016)
Estimated demand destruction level
12
2002
60
Marginal cost of supply
2001
80
Gas price
14
Gas price ($/mcf)
100
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Oil Price ($/bbl)
120
Brent oil price
Incentive price for new supply
Estimated demand destruction level
Cash cost of marginal current supply
2000
140
1999
160
1998
•
1997
•
Historically, both crude oil and natural gas commodity prices have traded between
the cash cost of supply and the price at which demand is destroyed
Crude oil is currently trading close to the estimated marginal cash cost of supply,
estimated to be the cost of running large scale Canadian oil sands facilities
Henry Hub natural gas is trading at around the cash cost of current marginal supply
1996
•
14
Natural gas: summary views
15
• The gap between US and international gas prices has closed significantly
•
•
•
•
US continues to have high levels of new supply, economic at $3/mcf, from the Marcellus
Asian gas demand has weakened as Japan has increased nuclear activity and switched to solar
Asian gas price formulae are linked to oil prices with a 6 month lag
New US LNG facilities will start operation between 2016 and 2020, the economics of the
spot price arbitrage now look significantly less attractive
Euro Spot
Source: Bloomberg, Guinness Atkinson (data as of Sept 2016)
US Spot
Japan LNG Price
Sep-16
Mar-16
Sep-15
Mar-15
Sep-14
Mar-14
Sep-13
Mar-13
Sep-12
Mar-12
Sep-11
Mar-11
Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
Sep-06
Mar-06
Sep-05
20
18
16
14
12
10
8
6
4
2
0
Mar-05
Natural gas price ($/mcf)
Global natural gas prices (US$/mcf)
US natural gas: storage is slightly above the 5 year average
• A very warm 2015/16 winter pushed inventories to record (seasonal) levels
• The overhang vs 10yr average has reduced from 900bcf (end 1Q 2016) to 210bcf
US natural gas inventories
Working gas in storage (Bcf)
4,500
Maximum storage capacity 4,000 to 4,300 Bcf
4,000
3,500
3,000
2,500
5 year spread 2007 - 2011
2,000
5 year av. 2007 - 2011
1,500
2015
2016
1,000
500
1
5
9
Source: IEA; Guinness Atkinson, Sept 2016
13
17
21
25
29
33
Week number (1st Jan = 1)
37
41
45
49
16
Guinness Atkinson Energy Fund: sources of potential upside
•
•
•
•
•
•
17
Return on Capital Employed (ROCE) is a key driver of valuation for the energy sector
ROCE has been depressed as a result of cost inflation, capital enlargement and now, oil prices
The ROCE for the Guinness portfolio is likely to be only 2% in 2016 at $40 Brent oil
Even with $70/bl oil in 2019, all else being equal, ROCE would be below the long run average of 11%
The sector is focussing on cost cutting and efficiency gains to help boost ROCE
We see good potential for ROCE to exceed our expectations and for valuation to benefit
Super Majors* ROCE vs Price/Book multiple
ROCE and Upside for GA Energy portfolio
3.5x
100%
2004
2003
3.0x
2005
2002
2001
2.5x
2010
2011
2006
2012
2013
Upside in Guinness Energy portfolio
Fi ve yea r average price/tangible book
R² = 78%
2009
2008
2007
2000
2.0x
1999
2015
1998
1.5x
1995
1996
1994
1993
2014
1997
10%
80%
2020
($70/3.25)
70%
60%
50%
2018
($65/3.25)
40%
2019
($70/3.25)
Long run
average
ROCE of
11%
30%
20%
2017 ($55/3)
10%
0%
1.0x
5%
90%
15%
20%
25%
Fi ve yea r average return on ca pital employed (lagged by two years)
30%
0%
2%
4%
6%
8%
10%
Return on Capital Employed (ROCE)
* Super Majors are Exxon, Chevron, BP, RD/Shell and TOTAL
Source: Bloomberg numbers in brackets indicate forecast Brent oil ($/bl) and Henry Hub ($/mcf) gas prices; upside
for GA Energy portfolio upside represent Guinness Atkinson estimates
Past performance is no guarantee of future results.
12%
Guinness Atkinson Energy Fund – source of the potential upside
•
•
•
•
•
18
We use target EV/EBITDA multiples as one of our tools for assessing valuation
Each company has a specific target multiple based on historic levels and profitability
The Guinness Atkinson portfolio has had a 10yr average (2006-15) EV/EBITDA multiples of around 7.8x
Our average target multiple is a more conservative 6.7x for the Guinness Atkinson Energy portfolio
If the portfolio traded at 6.7x 2018 EBITDA, there would be around 35% upside
Historic and forecast * EV/EBITDA multiples
(at $65 oil)
Equity upside at $65 oil in 2018
100
90
80
70
60
50
40
30
20
10
0
Target multiple
used for GA
Global Energy
fund
Enterprise value (US$bn)
12.0x
35%
upside
Current share prices
Net debt
at 6.7x EV/EBITDA
target for 2018
Market cap
* chart represents the average net debt, market capitalization and
enterprise value for the Guinness Atkinson Global Energy fund
EV/EBITDA multiple
10.0x
8.0x
6.0x
4.0x
2.0x
0.0x
2015
2016
2017
2018
Source: Bloomberg; Equity upside represents Guinness Atkinson estimates
* Oil and gas price estimates as follows: 2016 ($43/$2.50), 2017 ($55/$3.00), 2018 ($65/$3.25), 2019 ($70/$3.25)
Past performance is no guarantee of future results.
2019
2020
5yr ave 10yr ave
Guinness Atkinson Energy Fund – source of the potential upside
19
• On our base case oil price and EV/EBITDA assumptions, we believe the Guinness Atkinson Energy Fund:
•
•
is around fair value at $50-55/bl oil in 2017, based on 6.7x EV/EBITDA
Offers between 50% and 65% upside at $70/bl oil in 2019/2020
• Our ROCE and EV/EBITDA estimates may prove to be conservative. Using Suncor as an example:
•
•
•
Based on our 6.5x EV/EBITDA and 4% ROCE estimate for 2017, we have a target of C$46/sh
If ROCE increased to 10%, then our target could increase to around C$57/sh
If our EV/EBITDA target multiple increased to 7.5x, then our target could increase to around C$67/sh
Upside/downside at Base Case price estimates
Suncor*: example of valuation uplift
80
C$ share price (blue) and % upside from
current (green)
80%
60%
% upside
40%
20%
0%
-20%
-40%
70
26%
60
35%
50
40
34%
30
20
34
57
67
10
0
Current
-60%
2016
($43/2.5)
2017
($55/3)
2018
2019
2020
($65/3.25) ($70/3.25) ($70/3.25)
Current
target
ROCE
Potential At 10yr Potential
uplift to new target
ave
target
10%
EV/EBITDA
Suncor (SU CN) Potential New Target based on EBITDA of C$15bn and 10% ROCE.
SU has 10yr average ROCE of 11% and EV/EBITDA of 7.5x
Source: Bloomberg, Suncor annual reports; upside/downsides represent Guinness Atkinson estimates
Past performance is no guarantee of future results.
Energy equities: at low levels within global indices
Weight of energy with the S&P Index (1926-2016)
S&P Index sector weights (1990-2016)
40
Weight (%) within the S&P500 Index
• The S&P500 energy index was 7.3% of the
S&P500 index at 30 Sept 2016
• Since 1990, energy has ranged between
5.1% and 16.2% of the S&P500
• The average weight over the last 25 years
has been 9.5%
• The weight of energy within the S&P 500
is close to multi-decade lows
20
35
30
25
20
15
10
5
0
1990
1995
IT
Consumer Disc
Energy
Telecoms
Source: GMO, S&P, MSCI, Bloomberg, Guinness Atkinson (Data as at end Sept 2016)
2000
2005
Financials
Consumer Staples
Utilities
2010
Healthcare
Industrials
Materials
2015
21
Fund and index performance, as of Sept 30, 2016
•
•
•
•
Energy suffered a second consecutive year of poor returns
The energy index was down 22% in 2015 as a result of lower oil prices
This is the second consecutive year of significant negative returns for energy
Outperformance from energy vs S&P500 in 2016 (to Sept 30)
YTD
1
Year
5
Years*
10
Years*
Since
Inception
(June 30, 2004)*
Global Energy Fund
16.50%
16.13%
-0.20%
1.15%
6.88%
MSCI World Energy Index
18.59%
18.01%
3.18%
2.56%
6.32%
S&P 500
7.82%
15.39%
16.33%
7.22%
7.59%
Gross expense ratio: 1.41%
*Periods over 1 year are annualized returns
Performance data quoted represents past performance; past performance does not guarantee future results.
The investment return and principal value of an investment will fluctuate so that an investor’s shares, when
redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or
higher than the performance quoted. Performance data current to the most recent month end may be obtained
by calling 800-915-6566 and/or visiting www.gafunds.com
Source: Bloomberg
Fund positioning: key themes in the fund for 2016
Theme
Example holdings
22
Weighting (%)
1
Cheap large-cap oil
34.4%
2
Undervalued integrated oil & gas reserves
19.5%
3
Exploration & production spending plans
8.8%
4
US shale oil growth
8.5%
5
Emerging market natural gas demand
7.5%
6
International mid and small cap oil producers
5.9%
7
Rising US natural gas price
3.6%
8
US Gulf Coast refining advantages
2.9%
9
Low cost solar
2.6%
10 Other (incl cash)
Top 10 holdings in the fund at Sept 30 2016: Apache Corp 4.00%; CNOOC Ltd 3.77%; Halliburton Co 3.62%; Devon Energy Corp
3.60%; Gazprom PJSC 3.58%; Statoil ASA 3.58%; Canadian Natural Resources Ltd 3.57%; Royal Dutch Shell PLC 3.53%; Chevron
Corp 3.40%; Newfield Exploration Co 3.40%;
Source: Guinness Atkinson, at end Sept 2016
5.4%
Indicative fund contribution, per position
23
2016 (YTD) indicative contribution
2016 3Q indicative contribution
DEVON ENERGY CORP
CANADIAN NATURAL RESOURCES
HELIX ENERGY/UNIT CORP
CONOCOPHILLIPS/SOUTHWESTERN
CARRIZO/QEP RESOURCES
HELIX ENERGY/UNIT CORP/SHAWCOR
CONOCOPHILLIPS/SOUTHWESTERN
CARRIZO/QEP RESOURCES
APACHE CORP
APACHE CORP
RESEARCH PORTFOLIO/OTHER
SOCO/TULLOW/BANKERS
CANADIAN NATURAL RESOURCES
NEWFIELD EXPLORATION CO
VALERO ENERGY CORP
DEVON ENERGY CORP
GAZPROM PAO -SPON ADR
HALLIBURTON CO
OMV AG
STATOIL ASA
MSCI WORLD ENRGY INDEX
CNOOC LTD
GUINNESS GLOBAL ENERGY FUND
CHEVRON CORP
SUNCOR ENERGY INC
GAZPROM PAO -SPON ADR
CNOOC LTD
MSCI WORLD ENRGY INDEX
BP PLC
ROYAL DUTCH SHELL PLC-A SHS
SCHLUMBERGER LTD
GUINNESS GLOBAL ENERGY FUND
TOTAL SA
BP PLC
IMPERIAL OIL LTD
SCHLUMBERGER LTD/WOOD GROUP
NOBLE ENERGY INC
HESS CORP
HALLIBURTON CO
EXXON MOBIL CORP
CHEVRON CORP
OCCIDENTAL PETROLEUM CORP
STATOIL ASA
TOTAL SA
SOCO/TULLOW/BANKERS
SUNCOR ENERGY INC
OCCIDENTAL PETROLEUM CORP
NOBLE ENERGY INC
NEWFIELD EXPLORATION CO
IMPERIAL OIL LTD
TRINA SOLAR/JA SOLAR/SUNPOWER
ENI SPA
PETROCHINA CO LTD-H
OMV AG
EXXON MOBIL CORP
RESEARCH PORTFOLIO/OTHER
ENI SPA
PETROCHINA CO LTD-H
ROYAL DUTCH SHELL PLC-A SHS
VALERO ENERGY CORP
HESS CORP
TRINA SOLAR/JA SOLAR/SUNPOWER
-0.50
0.00
0.50
Contribution to return (percent)
1.00
-3.00
Notes: MSCI World Energy Index included for comparison purposes. Charts include companies held in the
quarter but, in some instances, no longer held. There is no guarantee similar investments will be made
Source: Guinness Atkinson,
Bloomberg, data as of end Sept 2016
Past performance should not be taken as an indicator of future performance. The
value of this investment and any income arising from it can fall as well as rise as a
result of market and currency fluctuations as well as other factors.
-2.00
-1.00
0.00
1.00
2.00
Contribution to return (percent)
3.00
Fund characteristics
Single sector
Companies engaged in the production and distribution of energy (oil,
natural gas, coal, alternative energy, nuclear and utilities)
High conviction
Equally weighted, concentrated portfolio (30 positions)
Unconstrained
No reference to index
Global
Diversified globally
Investment type
Listed equities (long-only)
Investment
objective
Long-term capital appreciation
24
Fund manager biographies
Timothy Guinness
•
•
Executive Chairman and Chief Investment Officer of Guinness Asset Management
•
Co-founder of Guinness Flight Global Asset Management and, after its acquisition
by Investec, chairman of Investec Asset Management until March 2003
•
Graduated from Cambridge University in 1968 with a degree in Engineering. After
obtaining an MBA at MIT, worked for 10 years as a corporate financier
Portfolio manager of the Investec Global Energy Fund from November 1998 to
February 2008
Will Riley CA
•
•
•
•
Joined Guinness Asset Management in 2007
Company valuation expert for PricewaterhouseCoopers 2000-2007
Qualified as a Chartered Accountant in 2003
Graduated from Cambridge University with a Masters degree in Geography in 1999
Jonathan Waghorn
•
•
•
•
Joined Guinness Asset Management in 2013
Co-portfolio manager of the Investec Global Energy Fund from February 2008 to
May 2012
Co-head of energy equity research at Goldman Sachs from 2000-2008
Drilling engineer in Dutch North Sea for Shell
25
Contact details
26
Corporate Office (California)
Frank Zukowski
[email protected]
1-732-972-2266
Jim Atkinson
[email protected]
1-818-716-2739
21550 Oxnard Street
Suite 850
Woodland Hills
California 91367
Investment management team (London)
Tim Guinness
[email protected]
+44 (0) 20 7222 7978
Will Riley
[email protected]
+44 (0) 20 7222 3451
Jonathan Waghorn
[email protected]
+44 (0) 20 7222 3457
14 Queen Anne’s Gate
London
SW1H 9AA
For your protection, calls to these numbers may be recorded
Guinness Atkinson Asset Management
•
Guinness Atkinson Asset Management: founded in 2003, along with US sister firm Guinness
Atkinson Asset Management Inc.
•
Four core areas of expertise: Global Equities, Energy, Asia & Financials
•
Guinness Group AUM (at Sept 30, 2016): $1.13bn
•
Staff of 19, including 8 investment professionals
•
Company is 100% owned by employees
AUM = assets under management
27
Disclosure
28
Opinions expressed are subject to change, are not guarantee and should not be considered investment advice.
The Fund’s holdings, industry sector weightings and geographic weightings may change at any time due to on-going portfolio management. References
to specific investments and weightings should not be construed as a recommendation by the Fund or Guinness Atkinson Asset Management, Inc. to buy
or sell the securities. Current and future portfolio holdings are subject to risk. References to other mutual funds should not be interpreted as an offer of
these securities.
Mutual fund investing involves risk and loss of principal is possible. The Fund invests in foreign securities which will involve greater volatility,
political, economic and currency risks and differences in accounting methods. The Fund is non-diversified meaning it concentrates its assets in fewer
individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual stock volatility than a diversified fund. The Fund also
invests in smaller companies, which involve additional risks such as limited liquidity and greater volatility. The Fund’s focus on the energy sector to
the exclusion of other sectors exposes the Fund to greater market risk and potential monetary losses than if the Fund’s assets were diversified
among various sectors. The decline in the prices of energy (oil, gas, electricity) or alternative energy supplies would likely have a negative effect on
the funds holdings.
While the fund is no-load, management and other expenses still apply. Please refer to the prospectus for further details.
This information is authorized for use when preceded or accompanied by a prospectus for the Guinness Atkinson Funds. The prospectus contains more
complete information including investment objectives, risks, fees and expenses related to an ongoing investment in the Fund. Please read it carefully
before investing.
You cannot invest directly in an index.
Contango refers to a situation where the future spot price is below the current price, and people are willing to pay more for a commodity at some point
in the future than the actual expected price of the commodity.
Fund holdings & sector allocations are subject to change and are not recommendations to buy or sell any security.
Diversification does not assure a profit nor protect against a loss in a declining market.
For Institutional Use Only. Not for use with the retail public.
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