U.S. funds buying in to energy sector's latest bull market: sand

Mon Jun 6, 2016 1:47pm EDT
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* Sand usage expected to double in three years

* Shares of sand companies still below year-ago levels

* Funds focus on companies with best logistics networks

By David Randall

NEW YORK, June 6 (Reuters) - With new signs of life in U.S. oil fields as the price of crude has climbed back above $50 a barrel, fund managers are upping their bets on an unheralded aspect of the fracking boom: sand.

Shares of companies that mine and sell sand - which is pumped into wells to make them more efficient - are on a tear, with some stocks nearly doubling for the year to date while the benchmark Standard & Poor's 500 index is up less than 3 percent. On Monday, for instance, shares of Fairmount Santrol Holdings Inc were up 14.4 percent at $7.61 in afternoon trading, while Hi-Crush Partners LP shares were up 8 percent at $11.61, following analyst upgrades.

Yet even with Monday's outsized gains, fund managers and analysts say they expect the bounce back from the bottom to be leveling off and they are focusing instead on companies they perceive as gaining market share in the year ahead.

"If you look out over two to three years, you can see overall sand usage some 50 to 100 percent higher than current levels," said Stephen DeNichilo, a portfolio manager at the $5.1 billion Federated Kaufman fund, which added a new position in U.S. Silica Holdings Inc, the largest publicly traded sand company, in the first quarter by buying 1 million shares.

Shares of the $2.1 billion market-cap company are up 72 percent of the year to date, yet still remain 2 percent below their level at this time last year. The number of funds adding new positions in the company has jumped 183 percent over the last three months compared with the quarter before, according to Morningstar data, and includes funds from firms such as Loomis Sayles, Wells Fargo, and Meridian.   Continued...