Energy fund Jennison taps smaller firms
Jennison Natural Resources Fund's David Kiefer is buying shares of companies that extract natural gas in Arkansas, mine for copper in Zambia...
Jennison Natural Resources Fund's David Kiefer is buying shares of companies that extract natural gas in Arkansas, mine for copper in Zambia and separate oil from tar sands in Canada to produce top-tier returns.
The $1.8 billion fund climbed at an average annual rate of 33 percent in the past three years (through Jan. 26), ranking second of 22 energy mutual funds tracked by Bloomberg.
The advance was led by natural-gas producer Southwestern Energy, copper miner First Quantum Minerals and oil-sands developer Opti Canada.
Kiefer outperformed by putting more than half his fund's assets in shares of smaller companies. The average market value of stocks in the Jennison fund is $6.6 billion, compared with $17 billion for competing funds.
Since crude-oil prices dropped in the second half of last year, he also has placed bigger bets on Canadian companies withdrawing oil in Alberta, the site of the biggest reserves outside the Middle East.
"Kiefer and his team are experienced in energy, so they're able to exploit their knowledge of small companies," said Lawrence Jones, an analyst at Chicago-based research firm Morningstar. Shares of Canadian companies represent 29 percent of the fund, up from 17 percent in May.
The Jennison trailed only the $933 million BlackRock Global Resources over the past three years. The BlackRock fund returned 35 percent.
Kiefer said he doesn't concern himself with swings in the markets.
"The absolute wrong thing to do is move out of a great name that might be down for a short period of time," he said.
Kiefer predicts oil will trade from the low $50s to the low- to mid-$60s a barrel for the next several quarters before prices start increasing again.
About 55 percent of the Jennison fund's assets are invested in small and medium-size companies, defined by Morningstar as having market values of less than $11.1 billion.
Companies of that size among the fund's top 10 holdings rose at an average annual rate of 47 percent during the past three years. The rest, which are large-company shares, gained 40 percent.
Kiefer and his team have contained declines in commodities markets by waiting out slumps. They hold on to stocks for an average of three years, more than four times longer than competing funds, Morningstar's Jones said.
The fund's three-year Sharpe ratio, a measure of risk-adjusted returns, is 1.24, compared with 1.14 for the average energy fund, according to Morningstar. The fund-research firm gives Jennison Natural Resources four out of a possible five stars.
Opti Canada is the smallest company among the fund's 10 largest stocks. The Calgary company's shares have risen at an annual rate of 23 percent since an initial public offering in April 2004.
Opti Canada and partner Nexen produce crude from tarlike deposits in northern Alberta, where Opti Canada projects it will extract 72,000 barrels a day by early 2009.