Doing so will allow the £53.6 million market cap player to weather low oil prices and capitalise on a potential recovery hinted at by trends in capex and drilling rates, with a 10.1% yield set to underplay its portfolio’s income generation prospects.

The fund manager’s investment process is primarily based on bottom-up stock selection drawing on industry experience, management meetings and valuation analysis, supported by a top-down overlay paying attention to broader market themes.

Its income generation is supported by higher yield fixed income investments, typically representing roughly 20% of its portfolio and broadly matched by borrowings, leaving the equity portfolio largely ungeared, Edison Investment Research said.

The market outlook, however, is slightly buoyant, with Edison forecasting a “gradual recovery” in prospects.

“After a dramatically adverse year for the oil industry, there are positive signs in the form of reduced capital spending by oil majors and a sharp reduction in the US oil rig count,” Edison said.

“These indicators may not result in lower output in the near term, as newly completed wells continue to come on stream and exporters focus on pushing output to generate revenue.”

Edison believes a lower rate of new well completions and natural decline rates are expected to lower global oil supply by the end of the year, helping to rebalance the market.

“In the medium term, global economic growth is expected to drive a steady rise in oil demand supporting a gradual recovery in the oil price, albeit well below the highs of the last three years,” Edison said.

Among New City’s investments are Aussie junior Antares Energy, Canadian players Vermillion Energy, Northern Blizzard, ARC Resources, Crescent Point Energy and Canadian International Oil, Denmark’s Welltec and UK player Impact Oil & Gas.

The good news is that crude oil prices have stabilised this year, with Brent crude rebounding by about 30% and market sentiment positively affected by a sharp and ongoing drop in the US oil rig count.

The oil majors have responded by cutting capital expenditure and US unconventional oil companies are acting rapidly to scale back production.

Edison noted that while the 2008 price fall was demand-driven, the recent correction was also influenced by strong supply growth, driven largely by North American unconventional oil producers.

“With OPEC producers currently maintaining stable output levels, the greatest supply-side reaction has been from US oil producers, reflected by the 41% drop in the Baker Hughes rig count,” Edison said.

Despite the sharply reduced rig count, newly completed wells continue to come on stream and US oil output may not start to decline until the second half of 2015, while lower prices are incentivising oil exporting countries to push output to generate revenue, limiting the prospect of production cuts in other regions.

Consequently, Edison says global output may continue to rise in the near term; only starting to diminish after further falls in the rig count and natural decline rates in existing wells come into play.

“In the medium term, prices could be pushed higher by a steady rise in oil demand driven by global economic growth and a lower rate of supply growth resulting from reduced capital spending by the oil majors,” Edison said.

In its February 2015 medium-term outlook, the International Energy Agency suggests a relatively swift rebalancing of the oil market could be followed by a gradual recovery in the oil price with the futures curve indicating a rise in the Brent crude oil price from an average

$US55/barrel this year to $73/bbl in 2020.

This is substantially below the highs of the last three years.

“Market concerns have recently been raised surrounding the potential for near-term oversupply to lead to storage levels reaching capacity at the major oil distribution hub at Cushing in Oklahoma,” Edison said.

Whether these concerns are well-founded or otherwise, Edison believes that while the market remains in oversupply, there is scope for fluctuating sentiment, driven by short-term data such as weekly oil inventory reports, to lead to increased volatility in the oil price and oil-related equities.