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How To Interpret Saudi Wealth Fund’s $2 Billion Splurge On Big Oil Stocks


At times of low stock valuations such as the current one, opportunists often enter the fray to acquire a hold in companies with long-term potential. Grabbing blue chip stocks on the cheap is afterall an enticing prospect.

Among that group of institutional opportunists is Saudi Arabia’s sovereign wealth fund – the Public Investment Fund or PIF – with its $300 billion holdings. It was rumored back in April that the PIF was buying huge chunks of blue chip stocks at the height of the coronavirus or Covid-19 market carnage.

On Friday (May 15) came the confirmation via various regulatory filings, especially those revealed by the U.S. Securities and Exchange Commission (SEC). They point to PIF holdings in major corporate behemoths.

We’re talking $713.7 million holdings in Boeing

BA
, $521 million in Citigroup

C
, $522 million in Facebook, $496 million in Disney, $488 million in Bank of America

BAC
and $514 million in Marriott to name a few.

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PIF already has a $2 billion stake in Uber

UBER
and electric car maker Lucid Motors. While its small stake in Warren Buffett’s Berkshire Hathway is intact, holdings in Tesla

TSLA
appear to have been divested. That gives the fund holdings of $10 billion in U.S.-listed stocks – up from a level of just above $2 billion – with it having taken full advantage of market weakness in the wake of the pandemic.

With such big names from America Inc. involved, the move grabbed headlines for sure. But the plethora of names also detracted some eyes from PIF’s international stakes in the very sector the sovereign wealth fund’s wealth actually comes from – oil and gas.

For in the shopping spree were plenty of Big Oil beasts. PIF revealed an $827.7 million stake in oil giant BP which has U.S.-listed American Depository Receipts (ADRs). The SEC filings also point to a $483.6 million stake in Shell, a $222.3 million stake in Total and a $481 million stake in Suncor Energy, to sit alongside its holdings in Equinor, revealed in a Norwegian filing earlier this month.

The message to take home from it all is that sector diversity matters to PIF but it is in no mood to deviate from its own petrodollar-infused DNA despite the beleaguered state the oil and gas sector finds itself in over the near-term.

If investing in an international portfolio of companies is aimed at reducing Riyadh’s reliance on oil, then investing in the medium-term bankability of international oil companies (IOCs) is going to be a part of it.  

A statement from PIF that followed the SEC revelations offers a clue: “PIF is a patient investor with a long-term horizon. As such, we actively seek strategic opportunities both in Saudi Arabia and globally that have strong potential to generate significant long-term returns while further benefiting the people of Saudi Arabia and driving the country’s economic growth.”

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These opportunities include “sectors and companies” that are well positioned to drive economies and lead sectors moving forward, it added. With $2 billion of investments pumped into Big Oil, one of its biggest plays in the current spree, the message – contrary to popular perception – is a clear punt on longevity of the sector even if future demand will be driven by petrochemicals and aviation in a post-Covid-19 world, and not automotive.

To quote PIF’s boss – Yasir al-Rumayyan – the fund is looking into opportunities in aviation, oil and gas, and entertainment, adding that there would be a lot of potential for investment opportunities once the current crisis passes.

The Big Oil math for the Saudis was clear and you should take note too. Comparing April-end levels with prices at the start of the year – BP shares were down 38%, Shell (-45%), Total (-39%), Suncor Energy (-48%) and Equinor (-25%).

All stocks are dividend paying, even if those dividends would be diminished in the near-term and their cyclical but bankable business streams remain at the heart of fund managers’ portfolio strategy. Given all of that, PIF’s opportunism when it comes to acquiring Big Oil stakes is blindingly obvious.

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