The latest ‘Hedge Fund Trend Monitor’ study from Amanda Sneider, David J. Kostin, Stuart Kaiser, Ben Snider, Rima Reddy and Aaron Woodside of Goldman Sachs Portfolio Research says hedge funds have increased their exposure to the energy sector.
During 3Q 2013, average hedge fund long allocation to Energy rose by about 66 bp. It is now 185 bp overweight relative to the Russell 3000 (11% vs. 9%), as seen in the table below (orange box).
However, Goldman Sachs also compiled a view on hedge funds’ net positions by combining $1.1T worth of single-stock and ETF long holdings in 13-F filings of 783 hedge funds with an estimate of hedge fund short positions. A sector-wise net exposure, as on September 30, 2013, is shown in the table below (orange box).
Hedge funds overweight
Even on a net basis hedge funds are overweight on the Energy sector (513bp) and next only to the Consumer Discretionary sector (1097 bp) that is the sector hedge funds are most overweight on.
Iran nuclear deal
As this is written, oil prices have fallen over 2% after a nuclear deal was thrashed out between Iran and world powers. Brent North Sea crude, the European benchmark for January delivery, was lower by $2.48, or 2.23%, to $108.57, while New York’s main contract, West Texas Intermediate (WTI) for January, fell 82 cents, or about 1%, at $94.02.
Patrick Clawson, Director of Research at the Washington Institute says oil would lose the “risk premium” that is inbuilt into prices due to the fear of an oil-related conflict in the Middle East, as quoted by this article. “The risk of there being a conflict that imperils oil shipments from the Persian Gulf goes down and therefore oil prices go down,” Clawson said.
The deal is however just preliminary, and it will be a while before sanctioned Iranian oil can find its way back into world markets. However, it does enhance the possibility of foreign companies such as Chevron Corporation (NYSE:CVX), Royal Dutch Shell plc (ADR)(NYSE:RDS.A) and Total SA (ADR)(NYSE:TOT) commencing operations in Iran on better terms.
Today oil shares traded weak on Hong Kong on news of the Iran deal. The underlying shares of CNOOC Limited (ADR) (NYSE:CEO), PetroChina Company Limited (ADR) (NYSE:PTR) and Sinopec Shanghai Petrochemical Co. (ADR) (NYSE:SHI) were down from 1.2% to 2.9% in Hong Kong.
If peace is breaking out, oil prices could trend lower, affecting stocks of oil companies and the value of hedge fund investments in these companies.
