Today's fund news:
Energy fund managers are making it clear: BP is no buy. As the Gulf oil spill drags on, the oil giant is on the hook for a nearly unknowable amount of damages. But the oil-field-service companies that have been battered alongside BP aren't in the same terrible shape. Andrew Lee, who manages the $1.4 billion Invesco Energy Fund tells Barron's that Halliburton, Schlumberger, Weatherford International, and Baker Hughes all "have tremendous upside from here."
Earlier this month, Tim Parker, an analyst a T. Rowe Price who will become the manager of T. Rowe Price's New Era Fund at the end of June, told U.S. News that stocks that aren't BP "are being disproportionately hit and don't have the same liability issues as BP. If anything, the service companies should see more earnings and revenue over time from the regulation because you will do things like run more cement lining and have bigger blowout prevents, so ultimately they should be beneficiaries."
As for thoughts of doubling down on shares of BP today? Lee says the oil firm could wind up being a value trap until that unlimited liability is assigned some sort of dollar figure. Parker warns: "You don't know just how far the rabbit hole goes in terms of the damage of the cost of the spill itself and litigation to whatever added regulatory cost you might have to the cost of cultural change."
Barron's (sub. req.): Navigating a Volatile Energy Market
U.S. News: The Outlook for Oil Companies in the Gulf
[See The Case For (And Against) Cutting BP's Dividend from U.S. News.]
Energy stocks are losing favor among managers, however, according to the latest BofA Merrill Lynch Survey of Fund Managers for June. But their biggest worry? Global growth. Just 24 percent of respondents see the world economy strengthening over the next 12 months, and optimism for quick recovery has been slumping notably since April. The outlook for corporate profits is sinking almost as fast. Other worries: Managers are fretting over liquidity conditions, with 42 percent describing liquidity as "poor", up from 22 percent in April. Inflation fears are sinking too, with 80 percent of respondents ruling out a Fed rate hike this year. "Global growth expectations have 'double-dipped' and positioning is more defensive but investors show little sign of panic," said Michael Hartnett, chief Global Equities strategist at BofA Merrill Lynch Global Research.
The upside: The fears over the euro's decline and European stocks may have peaked. Just a net 12 percent of respondents now want to underweight the region. "Investors are starting to see the basis for Europe's rehabilitation on the back of a more constructive outlook for the euro," said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research."
[See Is Bernanke's Optimism Contagious from U.S. News.]
Plus: The Vice Fund (VICEX) offers up an academic primer on why it's worth investing in everything that's bad for you (think tobacco, liquor, firearms, etc.) The research spans the last few years, but it's worth a read if you're weighing an investment in the wages of sin.
"The Price of Sin: The Effects of Social Norms on Markets," Marcin Kacperczyk, New York University, Harrison Hong, Princeton University, Journal of Financial Economics, April 2009.
"Sin Stock Returns," Frank J. Fabozzi, Professor in the Practice of Finance, Yale School of Management & K. C. Ma, Roland George Professor, Stetson University & KCM Asset Management, Inc., The Journal of Portfolio Management, Fall 2008.
"The Determinants of Sin Stock Returns: Evidence on the European Market," Julie Salaber, Paris-Dauphine University, November 2007.
"The Wages of Social Responsibility," Meir Statman, Santa Clara University Department of Finance, Denys Glushkov, University of Pennsylvania, December 26, 2008.