Households are facing soaring bills as prices surge, but smart investors can earn back money by buying shares in the companies that are profiting from the energy crisis.
DIY investors could secure an average return of 24pc by backing nine of London’s largest energy companies, according to data compiled by the stock analyst TipRanks.
Energy behemoths BP, Shell and British Gas owner Centrica have announced massive profits, dividend payments and share buybacks in the past week, as they have benefited from a surging oil and gas market.
But British families have been hit hard by rising energy prices, with warnings that the annual bills could reach £3,615 in the new year, according to predictions from analyst Cornwall Insight. However, savers can beat energy companies at their own game by investing in them ahead of the winter.
A £20,000 investment spread across nine energy and oil companies – BP, Shell, National Grid, Centrica, SSE, Energean, Harbour Energy, Greencoat UK Wind and Tullow Oil – could grow by £4,875 after just one year, based on City analysts’ current share price targets.
Rob Burgeman, of the wealth manager Brewin Dolphin, said energy companies looked very attractive for DIY investors, given the strength of the commodity market.
“But investors should be careful. They are volatile investments,” he warned. “Only two years ago, we had a negative oil price. Plus, there are political risks attached to some of these energy businesses now, with more discussion in Westminster about a windfall tax on their profits.”
Mr Burgeman said renewable energy companies could be safer for investors looking to avoid any political backlash. “A rising tide lifts all ships,” he said. “So rising power prices have been good for renewable energy businesses too, such as the Renewable Infrastructure Group and Greencoat UK Wind.”
Both are investment trusts which own a portfolio of renewable energy infrastructure assets. They have returned 1pc and 9pc respectively since the start of the year. The Renewable Infrastructure Group traded at a 3pc premium to the value of its net assets, while Greencoat UK Wind traded at a more modest 1pc premium.
DIY investors looking to profit from the energy sector may be better off spreading their risk by investing in a broader fund, rather than individual companies, analysts said.
Mr Burgeman highlighted the iShares World Energy ETF, which tracks the largest energy companies in the world, such as Shell in the UK as well as Chevron in the United States. It has returned 32pc in the past year and charges investors a fee of 0.25pc
He also pointed to the Franklin Templeton Clearbridge Global Infrastructure Income fund, which has returned 43pc in the past three years. “This fund invests across a range of utilities, from energy to toll roads, so that it can help spread risk,” he said. The fund counts National Grid and SSE among its top 10 holdings and charges 0.92pc.