Angelos Damaskos, manager of the £54m Junior Oils Trust, has bucked the trend to move defensive over the summer by increasing his equity exposure by 20%.
Damaskos, also CEO of Sector Investment Managers, liquidated a third of his bond portfolio and invested most of his cash in oil equities as he pointed to a valuation gap between the price of the commodity, around $100 a barrel, and the share prices of oil equities.
"We estimate oil equities as a sector are discounting oil prices at the $75 per barrel level, indicating either the oil price is expected to drop significantly or now is a good buying opportunity for those who, like us, believe oil prices are supported at current levels.
"Independent of market conditions and the European financial crisis, the companies we have invested in should prosper in an environment of growing demand for oil."
The managr has increased equity exposure from 70% at the beginning of the year to 90%, while bonds are now 8% and cash 2%.
"We had 30% in cash and bonds at the beginning of the year, which was a bold move considering the oil price was rising. We now think there is a valuation gap and unless the oil price drops significantly, it is a compelling buying opportunity," Damaskos added.
The manager added he agrees there are "many risks in the global economy which could destabilise equity markets" and thinks oil equities may see further volatility, but he still believes now is a good entry point.
He has used some of the cash to increase exposure to long-term favourite Caza Oil & Gas, which has "healthy cash reserves, growing production and an active drilling programme targeting mainly low-risk shallow fields", Damaskos added.
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