The oil services market is ready to boom.
At least that's the view of John R. Tozzi, president and chief executive of Cambridge Investments Ltd., San Francisco, an energy stock-focused hedge fund manager. Mr. Tozzi is making a push for institutional assets based on his view that the market for oil field service stocks will continue to produce exceptional returns.
Cambridge's net return year-to-date through September is 73.6%, using leverage as part of its management, while the S&P Oil and Gas and Equipment Index returned 58.6%.
He said institutions generally are underweighted to energy stocks at a time oil exploration is set to explode.
Because of a collapse in oil exploration that decimated the oil service market in the 1980s, world hydrocarbon production cannot continue to meet demand. "Exploration and production came to a standstill in the mid-'80s," Mr. Tozzi said.
Oil reserves now are running low, and oil exploration will have to increase, he said.
As a result, he advocates investment in oil service firms, companies that offer products or services to companies doing the actual exploration. Furthermore, a run-up in oil prices is not needed for oil services stocks to continue to shine, he said.
Institutions now are probably underweighted to the sector. He said active investment managers were weighted about 8% to energy stocks as of June 30, while the Standard & Poor's 550 Stock Index carries a 10% to 12% weighting, he said.
He said an alternative asset class allocation directly to the oil field sector would be the most likely way for pension funds and other tax-exempt investors to capture the expected returns.
Cambridge manages $1.4 billion, primarily through private investment partnerships more commonly known as hedge funds.