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Oil is hitting your wallet, but helping your portfolio

Money lost at the pumps regained in mutual funds


Don't fret when paying a $1 a litre to fill up your car this weekend -- chances are your mutual fund portfolio is reaping the benefits of the soaring price of oil.

A quick look at the returns of the 10 largest Canadian equity funds by assets under management indicates that those with the heftiest weightings in the oil patch have enjoyed the best returns. The energy sector now makes up close to 25 per cent of the S&P/TSX Composite Index and exposure is "what is going to make or break people's performance this year," said Gavin Graham, director of investments at Toronto's Guardian Group of Funds Ltd.

CI Fund Management Inc. of Toronto has bragging rights, with three of the best-performing funds in the top ten. Each CI fund has a hefty 20 per cent or better energy weighting.

The trio of funds -- CI Canadian Investment Fund, CI Harbour Fund and the CI Signature Select Canadian Fund -- are overseen by distinct management teams yet each has a "very definitive value bent," said CI chief executive officer Bill Holland.

"What was the cheapest asset class a few years back: resources. The value guys got in to oil pretty early and pretty aggressively."

It's a different story at Mackenzie Financial Corp.'s $5.3-billion Ivy Canadian Fund. The country's largest Canadian equity fund is, thanks to a slender 8.2-per-cent energy weighting, the weakest performer of the top 10. In general, the fund's deep value management team led by Jerry Javasky shuns the volatile commodities market, including the oil patch.

Instead, the Mackenzie team favours the energy infrastructure market. The world's oil and gas producers will sink about $200-billion (U.S.) next year into pipelines and services, spending that is expected to climb an estimated 15 per cent annually, said Benoit Gervais, co-manager of the Mackenzie Growth Fund.

Oil and gas producers are "the price takers. When you are a service company, you are the price maker," Mr. Gervais said.

Blue chip energy players including Petro-Canada, Encana Corp. and Canadian Natural Resources Ltd. make up about 25 per cent of the Canadian equity portion of AGF Management Ltd.'s Canadian Large Cap Dividend Fund.

"It's a pretty substantial bet on any sector in any market," said Alastair Dunn, a senior portfolio manager at Connor Clark & Lunn Investment Management Ltd. The Vancouver firm oversees the Canadian equity portion of the $2.7-billion (Canadian) fund.

"We feel $50 (U.S.) to $55 [per barrel] is probably a pretty good price. At those types of levels, the companies we have in the portfolio will generate a lot of cash flow," he said.

Mark Chow, an analyst at fund research firm, warns investors not to chase past performance and bulk up on the energy market at what may be its peak.

"Look at your existing portfolio to see what your energy exposure is," he said. "If it is already high and you decide this natural resource fund . . . looks good and you add it in and something goes wrong, you don't want to be surprised at how wrong it can go."

Assets in energy

Top 10 Canadian equity funds by assets

Fund, As of July 2005Net assets ($million)1-year return3-year return5-year return% in energy
Mackenzie Ivy Canadian5,351.0013.0%7.4%5.9%8.2%
RBC Cdn Equity4,007.0022.4165.322.1
CI Canadian Investment3,814.6024.816.11323.8
Trimark Select Canadian Growth3,806.5014.912.39.410.8
CI Harbour3,268.2024.91310.822.2
AGF Canadian Large Cap Dividend2,747.5024.915.16.717.3
MD Equity2,599.9023.116.98.619
CI Signature Select Canadian2,511.1025.415.612.621
Bissett Canadian Equity-A2,456.5022.213.1 -19.5
MB Canadian Equity2,355.6020.917.79.217.2


© 2007 The Globe and Mail. All rights reserved.

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