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Manager upbeat on global growth prospects

Not backing off on commodities

INVESTMENT REPORTER

Where others see challenges in the stock market, fund manager Rohit Sehgal sees opportunities.

He considers the rapid development in China and India and the resulting improvements in living standards, and sees plenty of reasons to be upbeat about global stock markets in the longer term.

In fact, Mr. Sehgal wonders why some investors are so negative and why some fret about how high U.S. interest rates will go. "When I look at the big macro picture, I get more and more excited," says the chief investment strategist at Toronto-based Dynamic Mutual Funds Ltd.

His Dynamic Power Canadian Growth Fund was early getting into the Indian market and has been there about four years. It has done very well in that part of the world.

Mr. Sehgal's optimism about the overall macroeconomic picture extends to the United States.

"It is great for the stock market because earnings are still growing at double digits in the U.S. and they are growing at a faster rate in other places of the world, like Asia," he says, adding that stock market valuations are "still very respectable."

The strategist's upbeat view on commodities follows out of his read on the global economy. "I can't be too negative on commodities, even after the moves [in prices] we have had," he says, noting that power generation capacity alone accounts for 60 per cent of the copper demand in China and that capacity is expected to increase 8 to 10 per cent a year over the next five years. He is also drawn to infrastructure stocks, because of the demand he sees coming for things like oil sands development in Canada.

Mr. Sehgal has been managing Dynamic Power Canadian Growth and several other funds since mid-1998. The $1.42-billion fund has jumped 20.58 per cent in 2006, continuing the winning ways that saw it climb 37.42 per cent in the 12 months ended March 31, 16.3 per cent annualized over five years and 11.71 per cent over 20 years.

His stock picks fit in with those themes.

Flint Energy Services Ltd. is an engineering and construction company that serves the energy industry. "Flint would be . . . a major beneficiary of the Mackenzie Delta gas pipeline constructions as there is no infrastructure to speak of North of 60. So we look at that opportunity as a potentially valuable call option on the stock," Mr. Sehgal says. He thinks the Calgary-based firm can earn profit of $3.50 a share this year and $4 next year. Applying an 18.5 times multiple to the 2007 estimate provides a 12- to 18-month target of $74. The shares are currently trading at $63.50.

Vancouver-based Tenke Mining Corp. is a 24.75-per-cent owner of the Tenke Fungurume copper/cobalt project in the Democratic Republic of the Congo. Phelps Dodge holds a 57.75-per-cent stake and a government-owned Congolese company has a 17.5-per-cent stake in the project, which " is one of the world's largest undeveloped copper resources," Mr. Sehgal says. Tenke Fungurume has 547 million tonnes of resource, and less than half the area has been explored. Production is scheduled to begin in 2008 at 100,000 tonnes per annum and could rise to 400,000 by 2011, he adds. Tenke also has good assets in Argentina. He puts the net asset value of the current resource at around $20 a share, but says "the exploration upside makes us think 1.5 times NAV is not a stretch, so our two-year target on the stock leading up to production is $30." The shares are currently changing hands at $16.15

OAO Gazprom is the world's largest oil and gas producer and exporter as well as the world's fourth-biggest company, Mr. Sehgal says, adding that the Moscow-based firm is thought to control about a third of total world natural gas reserves and has a monopoly on gas exports from Russia. Gazprom has the largest profit sensitivity to the oil price among the big players, he says, and at $60 (U.S.) a barrel, it could earn $20-billion or $3.40 a share next year. If a conservative multiple of 15 times is applied, it gives a 12- to 18-month target of $51 for the American depositary receipts with additional upside from asset monetization, he says. The ADRs, which trade over the counter in the United States, closed yesterday at $47.13.

On the sunny side

When he looks at the rapid development in China and India, fund manager Rohit Sehgal sees plenty of reasons to be upbeat about global stock markets.

Top 10 holdings

1Paladin Resources Ltd.
2Suncor Energy Inc.
3FNX Mining Company Inc.
4Bajaj Hindusthan Ltd.
5Paladin Resources NL
6Cameco Corp.
7Ivanhoe Mines Ltd.
8Alcan Inc
9Canadian Pacific Railway Ltd.
10Producers Oilfield Services Inc.
Percentage of portfolio 31.8%
Returns as of March 31/06
1-year37.42%
3-year35.78%
5-year16.30%
10-year12.85%
20-year11.71%
Dynamic Power Canadian Growth
Inception date August, 1985
Total assets$1.42 billion
Fund typeOpen-ended
RRSP eligibility Yes
5 star rating systemFive stars
Management expense ratio2.87%

' When I look at the big macro picture, I get more excited.'

ROHIT SEHGAL, CHIEF INVESTMENT STRATEGIST

AT TORONTO-BASED DYNAMIC MUTUAL FUNDS LTD.

© 2007 The Globe and Mail. All rights reserved.

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