Hedge Fund Sees 31% Gain From Oil-Stock Bet Before Prices Surged

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(Bloomberg) — Old West Investment Management went all in on energy stocks when oil was trading around $60 a barrel, Nicolás Maduro was still president of Venezuela and the prospect of a Middle East conflict that would send the world into a crisis was still only a distant worst-case scenario. 

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By the end of February, even before the Iran war sent energy prices soaring, the wager had driven the firm’s flagship fund to a 31% return this year —  just not entirely for the reasons that its chief investment officer expected.

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“I don’t know if we were lucky in it or just that these types of events highlight the importance of those types of scarce resources,” said Brian Laks, the CIO of Old West, which oversees about $1 billion of investments.

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Old West’s decision to increase its energy-stock exposure from the single digits to over 30% of its holdings stemmed from a call that looked far more predictable. Many in the industry had been expecting oil prices to drop as new supplies hit the market and slowing growth curbed demand. When that didn’t happen, it appeared the sector’s stocks were poised to rally back from a lagging run.

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That’s exactly what happened as Trump administration’s capture of Maduro, its hardline approach toward Iran and the impacts of Russian sanctions pushed oil prices higher. Then prices surged anew this month after the US and Israel started bombing Iran, miring the region in an escalating conflict that’s shuttered a key shipping lane and pushed oil to over $110 a barrel.  

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“It’s an interesting problem to have: we make this big rotation into an area, and within the first one to two months, a lot of the stocks are up 30% to 50%,” Laks added. “For the most part, that’s what people usually look for as a great return for the total lifespan of an investment.”

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The decision has catapulted the small Los Angeles hedge fund to returns that have eclipsed some of its bigger and better-known peers. 

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It outpaced oil-trader Pierre Andurand’s main hedge fund, which gained 19% through March 13, as well as RCMA Capital’s Merchant Commodity Fund, which returned around 20% through March 6. Old West also overshadowed major multi-strategy funds like Citadel’s Wellington, which had a 2.9% return through Feb. 28, and Balyasny Asset Management’s Atlas Enhanced fund, which was up 0.4%.

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Old West’s wager rested on expectations that — geopolitics aside — the industry would rebound from a run of significant underperformance over the past three years. The S&P 500 Energy Index rose just over 2% in the years 2023 through 2025, compared to a 78% gain in the S&P 500 Index. 

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“The sentiment had gotten too extreme and it was not matching up with the longer-term fundamentals,” Laks said. “Sure you may have had some oversupply projected this year, but we thought the longer-term outlook was much stronger relative to where the stocks and the commodity prices were trading.”