There are several reasons to be optimistic about oil tanker companies, says Fidelity Portfolio Manager Adam Kramer, who believes energy transportation firms that ship oil and refined petroleum products throughout the world are well-positioned to pursue long-term outperformance across a variety of market backdrops.
“For roughly two decades, oil tanker companies were largely overlooked, weighed down by boom-and-bust cycles, speculative purchases of ships and excess leverage,” says Kramer, who manages Fidelity® Multi-Asset Income Fund (FMSDX). “But today, the tide has turned. These businesses are now well-positioned, having embraced capital discipline, streamlined operations and reduced debt, all while delivering outsized dividends.”
In managing the flexible income-oriented strategy since 2015, Kramer, alongside Co-Managers Ford O’Neil and Ramona Persaud, invests tactically across a broad spectrum of income-producing securities, ranging from investment-grade bonds to dividend-paying equities.
“I believe the lack of attention to oil tanker companies is a big reason why these stocks have been undervalued, and why investors with the resources and knowledge to really dig into the category, as we do, have a compelling opportunity,” he says.
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Kramer notes that these businesses have typically been considered an effective hedge against geopolitical turmoil because trade disruption requires longer, higher-revenue shipping routes. But, less intuitively, he believes these companies could be well-positioned to benefit even if peace prevails.
“Such conditions could lead to the lifting of economic sanctions, and formerly isolated oil-producing countries likely would turn away from older, obsolete ships and toward newer models,” he explains. “A tightening of the market for modern, environmentally compliant vessels could benefit high-quality oil tanker companies, including those we’ve prioritized in the fund.”
Kramer points out that over the past five years, many of these firms have strategically reduced debt to near fleet scrap levels – creating leaner, more resilient balance sheets – while also lowering their free cash flow breakeven to trough levels, a rare trait among cyclical businesses.
As of August 31, four oil-tanker stocks represented about 13% of the fund’s equity assets: DHT Holdings (DHT) (based in Bermuda), Scorpio Tankers (STNG) (Monaco), International Seaways (INSW) (New York) and Frontline (FRO) (Bermuda).
“We believe each is well-positioned based on company-specific fundamentals, as well as tailwinds boosting the oil tanker industry,” he concludes.
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Adam Kramer is a portfolio manager in the High Income and Alternatives division at Fidelity Investments.
In this role, he manages several multi-asset income funds: Fidelity and Advisor Convertible Securities Funds, Fidelity and Advisor Multi-Asset Income Funds, and Fidelity’s Strategic Fund lineup—Fidelity and Advisor Strategic Dividend & Income Funds, Fidelity and Advisor Strategic Real Return Funds, Fidelity and Advisor Strategic Income Funds, and Fidelity VIP Strategic Income Portfolio. Mr. Kramer also co-manages Fidelity Preferred Securities & Income ETF. In addition, he manages opportunistic high-yield bond strategies for institutional investors as well as a high-income fund available exclusively to Canadian investors.
Prior to assuming his current responsibilities, Mr. Kramer co-managed Fidelity Advisor Equity Income Fund. Additionally, he worked as a portfolio assistant on Fidelity Leveraged Company Stock Fund, Fidelity Convertible Securities Fund, and Fidelity Advisor High Income Advantage Fund. He began working full time at Fidelity in 2000 as a research analyst and has since covered a variety of industries.
Prior to joining Fidelity in 1999, Mr. Kramer worked for RSM Richter in Montreal as a chartered accountant and auditor. He has been in the financial industry since 1994.
Mr. Kramer earned his bachelor of commerce degree in accounting and a graduate diploma in public accountancy from McGill University. He also earned his master of business administration degree from Cornell University.