By: The Energy Report, Malcolm Gissen, and Marshall Berol
Source: Peter Byrne of The Energy Report
Times may be tough for energy commodities, but Encompass Fund Managers Malcolm Gissen and Marshall Berol are hard-core survivors. In this interview with The Energy Report, the dynamic duo share their tactics for winning in 2013 after decades of experience investing in uranium, oil and gas, coal, hydroelectric and geothermal energy.
The Energy Report: In 2010, the Encompass Fund, which specializes in resource commodity stocks, had a spectacular return of 60%. Last year, the return was negative. What is your plan for success in 2013?
Malcolm Gissen: We have a diverse portfolio of companies, including real estate, healthcare, fixed income and natural resources. We have typically emphasized resource companies, because they are attractive growth prospects. But, as we all know, the resource sectors have done badly for more than a year. We are being rather cautious as we reconfigure our resource portfolio, looking for strong companies, especially junior and intermediate producers with very high appreciation potential.
TER: How do you define "strong"?
MG: In our experience, the quality of the management team is extremely important. We closely examine the experience of company executives, their past successes and non-successes, as nobody's perfect all the time. The importance of being well capitalized cannot be over emphasized. We consider management's proven ability to raise cash. Location of the assets is important: Geopolitical upheavals around the world are impacting mining and energy companies. The political factors range from overthrowing governments to altering tax and royalty rates and rewriting concession laws.
TER: What else do you look at?
MG: The investor base. We invest in companies that are supported by committed individuals or institutional investors. Strong support from brokerage firms helps a company to raise capital. Companies with CEOs who have access to cash or prior successful experience raising significant amounts of capital have strong advantages at a time when it is very challenging for resource companies to raise adequate capital.
TER: Do exchange-traded funds (ETFs) play a role in your strategy?
Marshall Berol: There are more than 1,200 ETFs on the market. They can be worthwhile, but Wall Street is slicing and dicing sectors and industries into really thin tranches to create somewhat non-transparent indexes. ETFs are not per se better than mutual funds or individual stocks. Investors must look under the hood of any ETF to see if it is investing in stocks, futures contracts or bullion. With that said, we do look at ETFs and have commodity ETFs in our separately managed accounts.
TER: Let's talk about the energy resource space. How do you parse it?
MG: It's going to take at least two to three years for natural gas prices to recover, largely because of increased production in North America. And because coal generates approximately double the pollutants in the atmosphere in producing electricity than natural gas, we believe that North American utilities will continue to close down coal plants. We also believe that because countries around the world are increasingly concerned about the pollution that comes from their power plants, they will be expanding their nuclear power programs. This is one of several reasons why we are bullish on uranium and the companies producing or soon to be producing uranium.
MB: Simply put: Supply and demand.
MG: There are over 60 nuclear power plants under construction today. In 2011, 143 million pounds (143 Mlb) of uranium of were produced worldwide. Globally, 165 Mlb of uranium was consumed. The difference between consumption and supply was provided by the decommissioning of Russian nuclear warheads pursuant to a 1993 treaty, which expires at the end of 2013. Globally, utilities are looking to find new sources to provide uranium that they're going to need for the next decade and beyond.
TER: What about oil and gas?
MG: Going back to our earlier discussion about geopolitical considerations: Fracking is regularly in the headlines as people ask whether it's beneficial or harmful. The oil and gas industry in Canada has engaged in fracking for more than 40 years without any demonstrated detrimental effects, but it has become such a hot-button issue with environmentalists that the politics are certainly something to monitor. Natural gas is plentiful in North America because of fracking, and that has resulted in much lower heating bills for American consumers. Unfortunately in the United States, activists have created an emotional issue out of fracking. If reasonable regulations are adopted and enforced, the energy industry can comply with those regulations and continue its operations, and public interests can be safeguarded. But if elected officials bow to pressure and reduce fracking activities, the amount of oil and natural gas will constrict. That will increase the price of gasoline and all forms of gas, of course, and also prevent the U.S. from becoming energy self-sufficient. Reducing fracking cuts both ways.
TER: Have you seen any promising juniors in the coal sector?
MG: We like the coal space because coal generates electricity all over the world until the cost of alternative energy can be significantly reduced. But coal also faces environmental issues in the United States that should continue to drive the export of coal, particularly to China. New regulations and restrictions could continue to reduce coal as a source of energy power. However, in the meantime, from time to time one can buy a coal company when the price is down, for company reasons, or industry reasons, and ride it back up.
TER: Thank you for your time.
MB: It's a pleasure.
MG: Thanks, Peter.
Malcolm Gissen founded Malcolm H. Gissen & Associates Inc., an investment advisory services firm, in 1985. Whereas early in his career the firm specialized in financial planning and in funding private companies, since 2000, the firm has focused on money management. He has invested in all asset classes and developed expertise in resource companies over the last 10 years. Gissen received a Bachelor of Science degree from Case Western Reserve University and a Juris Doctor degree from the University of Wisconsin. In 2006, Gissen and Berol co-founded the Encompass Fund, a no-load mutual fund, and are the portfolio co-managers.
Since 2000, Marshall Berol has been the chief investment officer of Malcolm H. Gissen & Associates Inc. In addition, for more than 20 years, he has owned the investment firm BL/SH Financial. His investment management experience has focused primarily on investments in publicly traded companies. He did his undergraduate work at the University of California, Berkeley, and received a a Juris Doctor degree from the University of San Francisco School of Law. He was in the private practice of law before entering the investment management business.
Streetwise – The Energy Report is Copyright © 2013 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.
The Energy Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.
From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.
Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.
Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.
Participating companies provide the logos used in The Energy Report. These logos are trademarks and are the property of the individual companies.
-- Posted Tuesday, February 19 2013 | Digg This Article |
Previous Articles by Guest Authors
UraniumSeek.com, Gold Seek LLC
The content on this site is protected by U.S. and international copyright laws and is the property of UraniumSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on UraniumSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.
The views contained here may not represent the views of UraniumSeek.com, its affiliates or advertisers. UraniumSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of UraniumSeek.com, is strictly prohibited. In no event shall UraniumSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.