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Institutional investors: Markets mix well with chemicals
December 23, 2013 | —Vincent Valk
For a third consecutive year, The Capital Group (Los Angeles) tops CW’s ranking of the chemical industry’s top institutional investors, with Fidelity (Boston) and T. Rowe Price (Baltimore) rounding out the top three. The ranking evaluates the top three active shareholders at publicly traded chemical companies with a market capitalization higher than $5 billion, according to the CW75 as of 25 November. Capital Group controls 14 such stakes at chemical makers, worth a total of about $25.7 billion.
While Capital Group has retained the same number of top stakes from one year ago, the value of its holdings has declined 9.5% from the 2012 list. However, the values of other money-management firms’ large chemical stakes, including Fidelity, T. Rowe Price, and MFS Investment (Boston)—the next three firms at the top of the list—have increased. The value of Fidelity’s holdings rose 31.1%, to $11.8 billion, while the firm held 16 top stakes compared with 12 last year. T. Rowe Price held the same six stakes, but their value rose 20.3%, to $8.06 billion, and MFS’s seven stakes rose 39.8%, to $8.05 billion.
Beyond the top firms, some newcomers have risen during 2013. The most notable of these is Franklin Templeton (San Mateo, CA), which barely registered among the industry’s leading investors last year. The firm has $4.4 billion under management spread across five top chemical industry stakes. Len Blavatnik’s Access Industries’ 15.7% stake in LyondellBasell Industries, which is worth $6.1 billion, also figures on the leaderboard this year. Other new firms include Credit Suisse and Cascade Investment. The latter manages funds for tech billionaire Bill Gates and holds a 9.27% stake in Ecolab, valued at $2.76 billion.
Some firms have fallen in the ranking. The value of Dodge & Cox’s (San Francisco) top chemical industry stakes declined 67.7% from 2012, to $1.08 billion, as the firm fell from the top 10 for the first time. Norges Bank’s top stakes declined in value by 21%, to $3.09 billion, while the firm’s number of top stakes fell from seven to four. Norges Bank, the world’s largest sovereign-wealth fund, manages the Norwegian government’s pension fund. The bank had fewer large chemical industry investments for the second consecutive year.
CW’s industry investor ranking includes institutional investors, such as The Capital Group and Fidelity, as well as private equity firms, hedge funds, insurance companies, and sovereign wealth funds. The ranking includes only active investors, who make daily decisions about the composition of their portfolios. It excludes index funds, which are automatically weighted to mirror the composition of overall market indices, such as the S&P500.
Chemical industry stocks have generally performed well in 2013. The CW 75 rose 15.9% for the year to 3 December. Overall market indices have also performed well this year, although their gains were generally smaller. The Dow Jones Industrial Average rose 22.8% for the year to 30 November, while the S&P500 rose 26.6% during the same period. Markets were also mostly less volatile this year than during 2012.
Fidelity’s Select Chemicals Portfolio, a mutual fund consisting mostly of chemicals stocks, rose 31.1% during the same time frame after rising 15.6% during 2012. The US shale gas boom has driven many of the fund’s investments, according to Fidelity portfolio manager Mahmoud Sharaf. The fund’s largest holding is a $114-million position in LyondellBasell, which is primarily an effort to capitalize on the US feedstock advantage, Sharaf says. The fund also holds positions in other US companies with large commodity chemicals operations, including Eastman Chemical, DuPont, Celanese, Huntsman, Axiall, and Dow Chemical. During the six months to 31 August, the fund significantly increased the size of its stake in LyondellBasell.
In addition to the Chemicals Select Portfolio, Fidelity maintains a materials portfolio, which invests in chemicals as well as mining, packaging, and paper companies. The fund recently upped its chemicals investments; 9 of its top 10 holdings as of 31 October were in companies listed in the CW75. The fund’s largest holding as of 31 October was a $179.2-million stake in Monsanto, and its second-largest holding was a $109.3-million stake in LyondellBasell. The fund also holds large stakes in Praxair, FMC, Ecolab, Eastman, and PPG. During 2012, the fund increased its exposure to commodity chemicals firms with business tied to the construction sector, says Fidelity portfolio manager Tobias Welo.
Capital Group’s investments in chemicals are spread across a variety of mutual funds. Fundamental Investors, a long-term growth and income fund, invested 4.1% of its holdings in chemicals as of 30 September, the most recently available data. The fund held large stakes in Dow, DuPont, FMC, LyondellBasell, and Praxair. Dow is the 10th-largest holding in American Mutual Fund, a Capital Group fund with a slightly more conservative philosophy than Fundamental Investors. Some 3.9% of the fund’s holdings are in chemicals, and it holds large positions in Air Products, 3M, DuPont, IFF, MeadwestVaco, and Praxair, in addition to Dow.