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May 04 16:47
May 04 21:47
May 05 05:47
By Andrei Postelnicu
May 2 (Bloomberg) -- Duncan Goodwin's bets for and against
oil producers helped his hedge fund outperform most rivals and
its own benchmark.
He drew on his past as the U.K.'s top stock analyst to
profit from falling stock prices at Exxon Mobil Corp., the
world's largest publicly listed oil company, and Royal Dutch
Shell Plc, Europe's biggest. He bought BP Plc, Europe's No. 2 oil
company, and Valero Energy Corp., the largest U.S. refiner.
``We focus on what's new, interesting and exciting, rather
than asking whether a company is good or bad,'' said Goodwin, 34,
who co-manages Martin Currie Investment Management Ltd.'s Global
Resources Fund. ``We want to understand what's changing within
the company so we speak to their competitors, suppliers, joint
venture partners and customers.''
The $424 million fund, which Goodwin co-manages with Chris
Butler, returned 17.8 percent in the year ended Mar 31, more than
the 11.7 percent average return among 2,000 hedge funds and just
ahead of the 16.1 percent return of about 45 hedge funds
investing in energy, according to the most recent figures from
Chicago-based Hedge Fund Research Inc.
Still, the fund's 3.2 percent gain through March lags behind
the 4.5 percent gain for energy hedge funds tracked by HFR as his
bets on falling stock prices for companies the process copper
proved ``frustrating''. Goodwin gave no further details on the
position in an update to investors.
It is ahead of the average of hedge funds that can profit
from falling or rising stocks, according to HFR, a Chicago-based
researcher.
London-based BP, San Antonio-based Valero and Weatherford
International Ltd., a Houston-based oilfield-services provider,
were among the top 10 holdings of Goodwin's fund at the end of
March.
`Sustainable Change'
Goodwin has also profited by focusing on companies he felt
other investors misunderstood. He held on to shares of oil
producer OMV AG as it became the biggest oil producer in Central
and Southeastern Europe by buying Romania's largest oil company,
SNP Petrom SA, at the end of 2004. The transaction tripled OMV's
oil and natural gas output.
That acquisition ``transformed OMV from an emerging market
refiner into an integrated oil company, and it was not priced as
such,'' said Goodwin. ``We look for long-term, sustainable change
that transforms a company.''
He said he sold the stock in May last year, when it was
trading at 45.41 euros ($61.79), or 85.3 percent higher than in
April 2005 when Goodwin joined Martin Currie. He said the fund
owned some shares in OMV when he joined.
Similarly he made money on an investment in Tenaris SA, a
maker of steel tubes used for taking oil out of the ground and
transporting it.
Top Picker
``The market was seeing Tenaris as a steel company,''
Goodwin said. ``We saw exceptional demand for that company
because we saw what was happening in the oil-services sector that
perhaps steel analysts couldn't see.''
The investment in Luxembourg-based Tenaris returned more
than 100 percent for Global Resources, Goodwin said, without
providing details on the timing of the investment. Tenaris shares
have risen 270 percent in the two years to March 31.
He joined Edinburgh-based Martin Currie two years ago from
Merrill Lynch & Co., where he was named Britain's top stock
picker by StarMine Corp., a San Francisco-based researcher that
ranks securities analysts for accuracy.
Global Resources makes bets for and against stocks in the
energy, basic materials and utilities industries, with Goodwin
looking after energy-related investments and Butler in charge of
materials and other investments. As a hedge fund, Global
Resources can go short, or borrow shares and sell them on the
expectation of profiting by buying them back at a lower price.
$100,000 Minimum
Global Resources' short positions included the stocks of so-
called oil majors such as Irving, Texas-based Exxon Mobil, The
Hague-based Royal Dutch Shell and Chevron Corp., based in San
Ramon, California, according to an investor update in February.
Exxon shares declined 3.3 percent in February and the same
amount the previous month. Shell lost 3.6 percent in February and
4 percent in January while Chevron lost 6 percent in February and
1 percent the previous month. The update did not specify when the
positions were initiated.
Hedge funds are mostly private and unregulated pools of
capital where managers can buy or sell any assets, participating
substantially in the profits of the money invested. Like most
hedge funds, Global Resources keeps 20 percent of any money it
makes alongside a 1.5 percent management fee. Investors must
invest at least $100,000 in the fund.
Trailing Hedge Funds
Martin Currie, which turned 126 years old last month and
managed $26 billion in client money as of January, started Global
Resources in October 2003. The fund returned 29 percent in 2005,
the year Goodwin joined, and has returned 58 percent since he
took over. That compares with a 39.3 percent return in the HFR
Energy hedge funds index.
Simon Hayley, an economist at London-based Capital Economics
Ltd., cautioned that investments in resource companies are risky
because they offer less diversification than other funds. Buying
the shares of such companies poses risks because they ``are
linked to the price of a commodity, and because they're an
equity,'' Hayley said.
The price of the benchmark West Texas Intermediate crude oil
contract, expressed in U.S. dollars, has fallen about 11 percent
in the past year.
Hedge funds overall trailed the world's equity markets last
year, with an average return of 13 percent, according to Chicago-
based Hedge Fund Research. That compares with the 15.8 percent
gain in the Standard & Poor's 500 Index and the 21 percent
advance in the MSCI World Index, denominated in U.S. dollars.
Seeking Crude
Goodwin bought shares of Houston-based Marathon Oil Corp. in
January 2006 at about $70 each. The fund sold the stock in April
at about $80, bought it again in early June at about $72, before
selling at more than $90 per share by the end of last year,
Goodwin said. He expects Valero shares to benefit from an
accelerated buyback program while some BP facilities are resuming
production following repairs.
Oil companies are seeking crude in more remote and difficult
to drill areas such as Canada's oil sands region in Alberta and
Goodwin is betting this will translate into higher demand for
companies that drill and maintain oilfields. The shares of
Weatherford, have jumped 26.2 percent this year.
Goodwin, who studied economics at Nottingham University,
began his career in business development for Royal Dutch Shell
before moving to Merrill.
He was ranked the U.K.'s most accurate stock picker in 2004,
when his calls in the global energy industry produced a return
36.9 percent higher than the benchmark, according to StarMine. He
was also named the U.K.'s best analyst for the accuracy of his
earnings estimates.
Goodwin said the prospect of greater compensation
contributed to his decision to become a hedge fund manager. Half
of the so-called incentive-fee income Goodwin earns is invested
in the funds he manages for at least three years, he said,
declining to specify amounts.
``There's a direct correlation between pay and performance,
which is attractive,'' Goodwin said.
To contact the reporter on this story:
Andrei Postelnicu in London at
apostelnicu@bloomberg.net (Related) .
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