Economic and geo-political unrest supportive of higher oil prices

Comment from Angelos Damaskos, CEO, Sector Investment Managers and Fund Advisor, Junior Oils Trust

The horrific earthquake in Japan has hit the World’s third-largest economy hard and, in weeks to come, the consequences will be felt in other parts of the world. The Bank of Japan reacted by pumping 183 billion dollars equivalent into the economy and many observers speculate that further quantitative easing may be required elsewhere.

Instability in the Middle East has raised the price of oil and increased the prospects of higher inflation. The sovereign debt problems in the Eurozone have emerged again and the ECB has announced new debt restructuring packages for the weaker members.

Medium term, these events are supportive of higher oil prices. The temporary shut-down of nuclear facilities in Japan will boost the need to import oil, LNG and coal and the disaster raises questions over the safety of nuclear power worldwide. It is likely that regulators will put the brakes on permitting new projects, and add new constraints to designs that will cause delays. The continued unrest in the Middle East is probably going to be a more important driver of oil prices in the medium term, despite the risks to global economic growth posed by the Japanese situation.

We believe that oil companies with reserves in safe political regions will attract a premium in the sector. Focusing on those with outstanding growth potential, strong management and a solid balance sheet is likely to provide better returns. The Junior Oils Trust is invested in such companies but also holds significant cash levels that will enable us to buy into market weakness. We have recently invested approximately 9% of the portfolio in some high-yielding bonds of oil companies. These bonds provide the fund with average annual yield of 12.5% and reduce the overall volatility of the portfolio. We maintain a flexible approach and may switch this investment back into equities once the cash available has been employed.

The Junior Oils Trust continues to be the best-performing energy fund in the UK over a 12-month period delivering a gain of 45.1% (as at 28 Feb 2011)*, compared to an increase in the WTI oil price of 21.7% and 11.9% for the fund’s benchmark, the FTSE 350 Oil & Gas index.
* Source: Bloomberg

If you wish to speak with Angelos Damaskos, CEO, Sector Investment Managers and Fund Advisor, Junior Oils Trust please contact Sally Moore or Saira Khan on 0207 726 6111.

About Sector Investments
Sector Investment Managers is an independent resources focused investment management company authorised and regulated by the FSA. It advises three open-ended fund products, Junior Gold, the Junior Oils Trust and the Junior Energy Fund, as well as providing advice and management for segregated accounts. Angelos Damaskos founded Sector Investment Managers in 2004 to provide investors with diversified access to the super-cycle in energy and commodities. www.sectorinvestments.com.

RISK WARNING:
This material is directed only at persons in the UK and is not an offer or invitation to buy or sell securities. Opinion expressed whether in general or both on the performance of individual securities and in a wider economic context represents the views of Sector Investment Managers Limited at the time of preparation. They are subject to change and should not be interpreted as investment advice. Sector Investment Managers Limited and Capita Financial Managers Limited are authorised and regulated by the Financial Services Authority. Any investment in the Fund should be based on the Fund’s current Scheme Particulars, Prospectus or its Key Features document. Past performance is not a guide or guarantee to future performance and the value of investments and any income from them may go down as well us up, and you may not get back the amount originally invested. Issued by Sector Investment Managers Ltd.