When it comes to BP you’d better check you’re not double or triple exposed …or worse

16th June 2010

British Oil giant BP has found itself in a grim place but what about its investors?

On one hand, it is grappling with the demands of investors seeking a dividend, on the other hand, the most powerful politician in the world, Barack Obama, is demanding that the dividend is not paid until the oil spill and its aftermath is dealt with.

This wouldn't just affect the dividend but the share price too.

Reports, like this in the Daily Mail, suggest BP is considering all manner of strategies from not paying the dividend, to paying only part of it, delaying it, ring fencing it or paying it in shares.

Rathbones chief investment officer Julian Chillingworth gives his view on the prospects for the stock on website Trustnet suggesting that it has been treated rather unfairly.

But what are the chances that you could be treble exposed or worse to BP?

It is possible that your pension may be partly invested in BP, that you may own a tracker or a UK income fund invested with BP and a with-profits fund that also has exposure.

Dividends from giant UK companies are such a handy source of returns for funds that pay out an income and for other fund managers who argue, correctly, that reinvesting dividends can have a huge impact on returns.

The stock will therefore turn up in all sorts of places.

This may apply in particular to passive funds, which generally track indices and often have a big FTSE 100 exposure, though different passive funds adopt different strategies and may have different screens.

Many pension funds have also adopted a passive strategy in recent years due to the financial crisis, increasingly the likelihood they hold the stock. Here is Reuters take on the risks. 

It doesn't mean that active managers, many in the income sector, are immune either. In general, the failure of banks to pay significant dividends has shrunk the universe of stocks that pay out in this way in the UK.

This has led to some warnings, admittedly from global income fund managers, that the universe in the UK has become dangerously concentrated.

But while ‘they would say that wouldn't they' applies here, it doesn't mean they aren't correct in their assessment.

Here is a report from a site for independent financial advisers' website FTadviser.com in which the global managers warn just that.

But what are the chances that you could be treble exposed or worse to BP?

You can seek the information from the managers of the funds you own.

If it's a FTSE tracker or a FTSE ETF you are going to have approximately the percentage BP makes up of the index.

If you have an UK income fund, you can check to see if the stocks are listed in the fund fact sheet though you should note that these can get out of date pretty quickly.

Depending on your pension arrangements, your company pension adviser may be able to tell you if you are overexposed.

If say you have chosen a UK tracker fund or a UK stakeholder fund there is definitely a risk of exposure.

But not all managers provide stock specific information and certainly not all with-profits funds, if you have an endowment policy or two.

If you are worried, the best source of information is probably an independent financial adviser.

If you have used an IFA to place all or at least most of your assets together on an investment platform, the various platform ‘tools' should allow an adviser to assess the risks to your portfolio of over-exposure, though even a good IFA may have trouble extracting all the information from a life insurer that no longer sells products but is simply managing its funds down, known as a closed life office.

By and large, however if you have sought the advice of an adviser already, you should not be over-exposed in the first place.

If you are a self directed investor, then there are tools available, but most are not up to full speed, listing things such as the top ten holdings, but no more.

The ultimate tools that can look through every opaque investment have been promised to the market, but do not seem to have arrived yet and they may well charge significantly or require you to use their other services for the privilege.

This one from Financial Express Analytics should allow you to identify at least the top ten holdings in across your portfolio, admittedly for a fee. 

Ultimately however, if you do have a significantly portfolio, the best thing to do is make sure you have a widely diversified portfolio.

 

Leave a Reply

Your email address will not be published. Required fields are marked *