Another Take on ESV and OZM

Below is moMANon’s response to my last post on ESV and OZM.  Since I wrote my last post praising ESV and questioning OZM, ESV has dropped another 4% and OZM has gained 4%, so I have to give some credit where credit is due (at least for now).  🙂

“The call out is well deserved.  But such a thing demands a response:
  • ESV and oil rigs.  These are very cyclical businesses.  Drilling rates go up, the industry builds more rigs, drilling rates go down, repeat as needed.  The timing of the cycles changes, the upswing can last longer than expected and the downturn can be worse than you planned.  While you earn a nice dividend you need to insure a lot of volatility.  While I too have little idea what will happen to oil prices they need it to rebound so drilling activity picks up and rig rates stop falling.  I too hope we’ve seen the bottom, and will support a Maverick purchase (but still no full position).   There’s still plenty of downside available.
  • OZM.  I’ve been trading around OZM for a while admittedly have position bias.  The downside is all true: performance sucks, management is bribing people, and hedge funds are under fire in the news.  But I don’t think OZM and BX are the same play.  Blackstone is a bull market winner; more deals, more inflows and more asset appreciation.  OZM on the other hand will do well in a flat and choppy economy with lower risk and steady performance.  Don’t get me wrong- I like Blackstone.  It is the benchmark in financial services, and buying a best of breed always seems to work out well.  OZM is a cheap way to play hedge funds, which have had a tough run, but the fees have held up, and the market can always shift to a more hedge fund friendly trajectory.  I like them both.  As long as assets under management keep growing, OZM is a better business going forward then it was yesterday.  For now they keep adding dollars even with the headwinds.  Some performance boost would go a long way but I have not lost faith.  Buy OZM.”

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