Ian Cowie: trust tips to soften the blow of record high petrol

Our columnist names routes to potential riches from companies benefiting from soaring energy prices. 

Petrol prices hit a record peak of 173p per litre on Britain’s forecourts this week after the European Union belatedly imposed sanctions on two-thirds of Russian imports. It will be no comfort to motorists, but the move at least begins to unwind the absurdity of European countries opposing the invasion of Ukraine while also effectively funding it.

Since the attack began on 24 February, the EU’s 27 member states have paid Russia a total of €56 billion (£48 billion) for energy. Most of this, almost €30 billion, paid for crude oil supplies, while liquefied natural gas (LNG) made up the rest.

Fossil fuels are still the lifeblood of industrial economies, so surging energy prices act as a tax, cutting profits on most commercial activities. But companies in the business of producing or transporting oil and LNG are enjoying rising revenues and profits.

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Investors can’t do much about the conflict, but we can protect our pensions and other life savings from becoming collateral damage. While we will all be losers as consumers, investment trusts can also offer shareholders some exposure to the winners.

For example, BlackRock Energy and Resources Income (LSE:BERI) has delivered total returns of 38% over the last year; 144% over the last five years and 115% over the last decade, according to independent statisticians Morningstar. Meanwhile, BERI continues to yield 3.2% dividend income while its shares trade 2.4% lower than its net asset value (NAV).

Its underlying portfolio is a diversified mix of hard and soft commodities. These include the biggest miner in the world, BHP Group (LSE:BHP), which is divesting its oil interests in a deal with Woodside Energy Group (ASX:WDS) this week; the oil giant Chevron (NYSE:CVX); and the renewable energy specialist, Vestas Wind Systems (XETRA:VWSB).

As I have held BHP for more than a decade and watched it surge into my top 10 holdings by value this year, I have avoided duplication by swerving BERI and, instead, bought shares in another investment trust, the Gulf Investment Fund (LSE:GIF). Qatar is its biggest country allocation, which offers indirect exposure to the energy theme because Qatar is the world’s third-largest exporter of LNG. Meanwhile, both its bigger rivals - Russia and Iran - are subject to sanctions.

GIF has done even better than BERI from restricted supplies of energy and soaring prices. The former fund has delivered total returns of 45% over the last year, following 147% over five years and 240% over a decade. It is the top performer across all three standard periods in the Association of Investment Companies (AIC) ‘Global Emerging Markets’ sector and still yields 2.2%, but the shares are trading 5.7% above their NAV.

Also in the Middle East, an under-reported news event that might have received more coverage in normal times may remind investors of the importance of being able to deliver energy, as well as produce it. Iranian soldiers and sailors seized control of two Greek oil tankers in the Strait of Hormuz last weekend, in apparent retaliation for Greece impounding an Iranian tanker carrying Russian oil.

More than 90% of global exports are transported by sea but few British individual investors these days have any direct exposure to maritime transport. Its cyclical and risky characteristics are good reasons to give shipping a wide berth. But two investment trusts diminish these disadvantages by diversification, while sharing the cost of specialist fund management.

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Neither has been in business long enough for five or 10-year records but Taylor Maritime Investments (LSE:TMI) has done best over the last year with a total return of 45% compared to Tufton Oceanic Assets (LSE:SHIP) at 31%. TMI also looks better value, trading on a 16% discount to NAV, compared to SHIP’s modest 4.1% discount.

However, for good or ill, I favoured SHIP for its yield of just over 6% rather than TMI’s 4.9% dividend income. It remains to be seen whether the higher yield will continue to mean lower total returns over the medium to long term, but I believe it is too soon to change course now.

Meanwhile, closer to home, the Royal Automobile Club (RAC) said on Tuesday that it costs more than £95 to fill a typical family car’s tank with unleaded petrol. RAC spokesman Simon Williams claimed: “The EU's decision to ban the majority of Russian oil imports will cause the price to go higher still, spelling yet more misery in the UK.

“The wholesale price of petrol has already been rising due to increased summer driving, which means we are likely to see average forecourt prices for petrol climb to 180p a litre in a matter of days.”

Interestingly, about £45 of the cost of filling a typical car’s petrol tank is made up of tax. Whatever politicians say, that is unlikely to be reduced by much because the government believes it needs our money more than we do.

The fuel crisis might get worse before it gets better but shareholders in some investment trusts with energy exposure can soften the blow. It’s an ill wind that blows no good and, hard though it may be to believe at the start of the summer, winter is coming.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is an investor in BHP Group (BHP), the Gulf Investment Fund (GIF) and Tufton Oceanic Assets (SHIP) as part of a globally diversified portfolio of investment trusts and other shares.