London-based energy hedge fund Westbeck Capital’s high-flying flagship strategy was brought back down to earth during a dismal October – but the oil-focused fund is staging a November fightback following news of a Covid-19 vaccine breakthrough.
The Westbeck Energy Opportunity Fund slipped 10.8 per cent last month – its second double-digit loss in as many months, having suffered a 15 per cent slide in September – after most oil equities were hammered in October.
The strategy “aggressively” cut its oil stocks portfolio in late September which helped ease equity losses. But the announcement of renewed lockdowns in Europe in late October “caused a complete collapse in the back end of the oil curve where we held a long position,” Westbeck said in a performance update this week. “The December 22 Brent contract matched the lows seen in March, an extraordinary development in our view.”
Elsewhere, a breakdown between crude oil price action and fundamentals from late August onwards also created a “difficult environment” for short-term trading.
But the fund – which takes a long/short directional approach to trading oil equities, futures and options – has seen performance rebound so far this month, gaining more than 15 per cent in the first two weeks of November to put its year-to-date return at 46 per cent.
The strategy – which is led by Westbeck co-founders Will Smith, CEO, and Jean-Louis Le Mee, CIO – is now preparing for a “spectacular rebound” in oil prices and oil equities in the next 18-24 months, a stance reinforced by the vaccine news.
Outlining its bullish investment stance, Westbeck described the Covid-19 vaccine breakthroughs announced by Pfizer and Moderna as a “remarkable” development.
“We believe these two mRNA vaccines now essentially underwrite a return to normality for oil demand through the course of 2021.”
At the same time, the coming cold weather period in the northern hemisphere may help offset some of the mobility losses felt during winter lockdowns, while Joe Biden’s US election victory is unlikely to materially impact the start of a “new and powerful” oil bull market.
“In our view, the time has come to be aggressively long the back end of oil as well as oil equities in order to play a sustained rebound,” Westbeck said.
“While some of our investors suggested we should have cut our risk beyond what is stipulated in our drawdown plan, it has been our belief since August that good news on the vaccine front was likely and that it would be a major positive catalyst for oil and oil equities.”
