At 15% of assets, integrated oil and gas represent a significant underweight position relative to the benchmark Dow Jones U.S. Oil & Gas Index, which has more than 47% of its holdings in major integrated oil and gas service stocks. Although the stocks are relatively inexpensive, they don't have the growth characteristics Lees likes to see.
The fund is also underweight relative to the benchmark in gas exploration and production companies, which have been hit by abundant supplies and low prices. But at the beginning of this year he added to some positions in Southwestern Energy and Petrohawk, both leading explorers and producers of natural gas in the U.S., after gas prices finally began creeping up.
"There's a chance that the industry will become less awful than it was last year, although gas prices are still likely to remain fairly range bound," he says. "Things will get better in the second half of the year if producers stop drilling so much."