Energy picks weigh down two Canadian Equity medalists

Large stakes in the struggling sector have led to negative performance so far this year.

Jeffrey Bunce, CFA 1 September, 2017 | 5:00PM
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Jeff Bunce: After a strong recovery in 2016, the price of oil has been range-bound in 2017, with the benchmark West Texas Intermediate crude stuck between US$45 and US$55 a barrel. As oil is priced in U.S. dollars, a strengthening loonie versus the greenback in recent months has also been a headwind for many Canadian energy producers, and most firms need higher prices from current levels to be profitable.

It shouldn't come as a surprise then that the energy sector in Canada has been the worst performer year to date, down over 11% at last tally. Also, with energy representing almost a 20% stake in the S&P/TSX Composite, it's no wonder the Canadian equity market is barely in the black for the year, despite solid gains from other sectors.

The same can't be said of a couple of Canadian Equity medalists, though, as they've experienced energy-related woes that have put them in the red.

In particular, the Silver-rated PH&N Vintage fund has stumbled to fourth-quartile performance year-to-date. While the fund is slightly underweight energy, their stock picks in the sector such as Crescent Point Energy (CPG) and Cenovus Energy (CVE) have underperformed quite significantly, with both declining over 50%. The fund has fared better in the consumer discretionary and materials sectors, both this year and over the longer term. That's helped the fund to a top-decile ranking over the past five years.

The Bronze-rated Leith Wheeler Canadian Equity has also suffered from its energy holdings so far this year. Here, overweight positions in Tourmaline Oil (TOU) and Seven Generations Energy (VII) detracted the most amount of value. The fund's performance has been streaky over the past few years because of its energy holdings, finishing at the bottom of the peer group in 2015 before shooting to the top in 2016. They're in the third quartile so far this year. It's important to note that the team at Leith Wheeler has one of the longest fund tenures of any in Canada and their long-term, low-turnover approach has allowed them to succeed despite these shorter-term setbacks.

For Morningstar, I'm Jeff Bunce.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Cenovus Energy Inc25.81 CAD0.21
Crescent Point Energy Corp10.40 CAD-0.38
Tourmaline Oil Corp61.70 CAD-1.12

About Author

Jeffrey Bunce, CFA

Jeffrey Bunce, CFA  Jeffrey Bunce, CFA, is a senior investment analyst for Morningstar’s Investment Management group.

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