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THE SUNDAY TIMES: Invest in oil rigs

16 March 2008

Oil prices soared to $111 a barrel last week as investors piled money into crude oil as a protection against inflation and share-price turbulence.

The traditional way to invest in the oil price is to buy shares in one of the big producers, Shell or BP.

However, investment experts are recommending oil-rig bonds as one of the least risky ways to benefit from booming crude prices.

These bonds are issued by companies to finance the construction of rigs and oil and gas projects. They pay a fixed income so, as long as the firm issuing them does not run into trouble, the returns are relatively secure.

Most are issued on the Norwegian stock exchange and the easiest way to get exposure is to invest in the CQS Rig Finance Fund, an investment trust listed on London’s Alternative Investment Market and the Channel Islands stock exchange.

The fund is not without risks. A big fall in the oil price or a sharp deterioration in economic conditions will hit its share price. It has fallen 9% since January as the credit crunch has struck.

Fund managers recommend it, though, because it has an attractive dividend yield of more than 6%.

Graham Duce of Credit Suisse Asset Management said: “We see it as more like a lower-risk fixed-interest investment. The manager is heavily invested in the fund, which also gives us confidence as it means he has a vested interest in making sure the performance is good.”

Analysts also back small exploration firms such as Aminex, which has interests in America and East Africa and exclusive rights to drill in North Korea. If you prefer to invest in a fund that focuses on the smaller end of the market, Mark Dampier at Hargreaves Lansdown, an adviser, backs the CF Junior Oils trust.

http://business.timesonline.co.uk/tol/business/money/investment/article3558728.ece

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