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Double-digit returns fuel Sentry energy fund

swon@globeandmail.com

What are we looking for?

What the pros are buying.

It pays to check out the top holdings in funds to get stock ideas or as a way to research these investments. Today, we look at Sentry Select Energy Growth and Income fund at sentryselect.com.

More about the fund

The $200.6-million natural resources equity fund was formed last year from the merger of Sentry Select Canadian Energy Growth and Sentry Select Energy Income funds. Both were run by Laura Lau, a portfolio manager with Toronto-based Sentry Investments, who continues to oversee the merged fund.

Sentry Energy Growth and Income gained 33.7 per cent for the year ended June 30 compared with an average of 31.3 per cent for its peers, and 30.1 per cent over two years.

Ms. Lau expects oil prices to fluctuate between $90 to $110 (U.S.) per barrel, and stay in the lower end of that range. The high end would result in prices of about $4.20 a gallon for gasoline. At that point, demand starts falling off as consumers and companies look for alternative energy sources, she said.

She is more bullish on oil than natural gas. The International Energy Agency last month would not have announced the release of 60 million barrels of oil from government-held reserves "unless they believed that the [oil] market was very tight," she said.

She also likes energy firms that are natural gas liquid plays and produce so-called wet gases such as ethane, propane and butane because their prices tend to follow the price of crude oil.

What did we find?

Double-digit returns for most stocks over the past year, but red ink for Bankers Petroleum Ltd.

Formerly an income trust, Keyera Corp., which transports raw gas through pipelines to its natural gas processing plants in Alberta, still has potential upside, said Ms. Lau. "The company has a high return on equity at about 20 per cent, and a low payout ratio of 56 per cent, she said. "They have always done a good job of reallocating capital by upgrading plants, and ... they have been increasing distributions." Her one-year target is $50 (Canadian) a share.

She also likes Baytex Energy Corp., a heavy oil producer that also converted to a corporation from an income trust this year. "Their payout ratio is about 40 per cent, and they have consistently increased distributions and now dividends," she said. "We expect them to grow production at 8 or 9 per cent a year, and you get about a 4-per-cent yield on top of that." She has a price target of $58 on Baytex.

Peyto Exploration and Development Corp., another top 10 holding, is a natural gas producer in Alberta, but still manages to be "very profitable so that is why we own it," Ms. Lau said.

*****

TOP 10 HOLDINGS IN SENTRY ENERGY GROWTH & INCOME FUND AT JUNE 30

Company nameTicker$ Price (July 18)52-wk high $52-wk low $YTD % price chg1-yr % price chgP/EYield %Market cap. ($-mil)Volume
ARC Resources Ltd.ARX-T25.1628.6718.77-1.028.435.94.87,181471,664
Bankers PetroleumBNK-T5.999.925.72-21.2-15.559.901,478811,934
Baytex Energy Corp.BTE-T53.7558.7632.2815.362.647.64.56,191201,357
Crescent Point EnergyCPG-T42.3048.6135.30-4.312.7n/a6.511,441858,083
Enbridge Inc.ENB-T30.9732.7424.2510.121.122.83.223,981794,280
Keyera Corp.KEY-T43.5644.5128.0523.951.817.44.43,06571,344
Longview Oil*LNV-T11.3012.6510.10--n/a5.3n/a7,613
Peyto Exploration & Develop.PEY-T23.0223.3913.5124.551.524.53.13,063362,752
Vermilion Energy Inc.VET-T49.7552.4532.337.651.343.64.64,47043,966
Parallel Energy Trust*PLT.UN-T9.9511.009.00--n/a9.1n/a47,906
*Went public this year. Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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