Harry Briggs leverages his experience as a natural gas options trader and risk manager in the Tactical Energy portfolio on Covestor.
The portfolio is designed to invest in energy and exploration (E&P) companies, which are highly sensitive to economic cycles and volatile energy prices.
Briggs is the president of HCB Investment Management. Before founding the firm, he was a natural gas options trader and risk manager in the energy trading business. He earned an MBA in finance from Carnegie Mellon University.
“A lot of my investment philosophy came out of energy trading and managing price risk,” he said.
“I worked with oil and natural gas producers who wanted to hedge their production, but it didn’t seem their process for developing hedge strategies was analytically rigorous,” Briggs added. “With my background in options trading, I naturally thought of production assets as physical options, whose value was dependent on production costs, overall energy prices, and implied volatility from the energy options markets. That became my framework for analyzing and valuing E&P companies.”
Currently, the Tactical Energy portfolio has about 66% in cash and the rest in SPDR S&P Oil & Gas Exploration & Production ETF (XOP). The ETF holds about 80 stocks and is designed to put an equal amount in each.
“The plan is to invest in individual E&P stocks but right now I’m not really seeing anything compelling, so I’m holding cash and the ETF. There is nothing really attractive in the E&P sector relative to the overall market and energy prices,” Briggs said.
He added that the Tactical Energy portfolio is designed to have a simple, transparent approach that could be held in Individual Retirement Accounts (IRAs), for example. It is a long-only strategy designed to avoid any “free riding” violations that would preclude it being held in an IRA.
As for commodity ETFs focused on investing in energy futures, Briggs isn’t a fan.
“A lot of these ETFs are fundamentally flawed. Their methodology for rolling futures exposure from one month to the next is so transparent and mechanistic that they chronically underperform the commodity they are designed to track. Look at U.S. Natural Gas Fund (UNG), for example.”
When asked about his favorite investors, Briggs mentions the Fama and French factor research as being seminal, but said he tends to rely on his own judgment.
“I tend to be empirically driven,” he said. “I like analyzing data and digging into the numbers. I like to form my own opinions and verify them myself with the data.”
DISCLAIMER: The investments discussed are held in client accounts as of March 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
