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Keeping a keen eye on the oil patch

jnelson@globeandmail.com

What are we looking for?

With oil prices high, natural gas prices depressed and commodity prices volatile, which natural resource funds have weathered the past year best?

The screen

We searched for the best natural resource equity funds for the one year to Sept. 30. U.S. dollar, segregated, pooled, alternative strategy and duplicate versions of funds were excluded.

What did we find?

Natural resource funds have enjoyed gains, but for the top performer on this screen, mining is nowhere to be found.

"My expertise is in energy," says Rafi Tahmazian, portfolio manager for the Canoe Canadian Energy Class A fund. The fund posted gains of 33.6 per cent in the one-year period. The investments span oil, gas, energy services, infrastructure, renewable power and fertilizer, along with holding some cash.

With all those investment areas, having a deep understanding of the energy sector and oil patch is important, Mr. Tahmazian says.

This paid off for the Canoe fund when portfolio managers recognized upcoming demand in the energy services sector. A few major acquisitions, including CNOOC Ltd.'s purchase of oil and gas company Nexen Inc., brought more available capital to the oil and gas industries.

The capital that Progress Energy Resources Corp. planned to dedicate to energy services before it was acquired by Malaysian state-owned energy firm Petronas, for example, was just one quarter of the capital that was actually put to work after the acquisition, he said. That created more demand for services. "And we quickly piled into that."

There are also seasonal considerations for the fund. If a harsh winter is expected, the fund would seek to be positioned in the right gas stocks. Last year's winter "came in like a lamb," Mr.Tahmazian said, and the fund backed off its gas investments by January. With the heating season set to begin on Nov. 1, the fund is watching the weather again. A cold winter would likely drive up gas stock prices.

For this fund, the risk of investing in pipelines isn't worth the reward. Choosing the right company and predicting political swings is too difficult at this juncture.

The fund's top holdings include Vermilion Energy Inc. and ARC Resources Ltd.

The second best performers in the screen were ETFs. The BMO Junior Gas Index ETF and the BMO Junior Oil Index ETF posted gains of 30.3 and 29.6 per cent, respectively.

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NATURAL RESOURCES EQUITY FUNDS, ONE YEAR TO SEPT. 30

% return (Sept. 30)% returnAssets
FundsTicker1-yr3-yr5-yr10-yr2012201120102009MER($-mil)
Canoe Canadian Energy Class A33.6%5.9%2.7573.3
BMO Junior Gas Index ETFZJN-T30.3%13.7%-11.1%2.2%0.628.7
BMO Junior Oil Index ETFZJO-T29.6%13.6%-2.7%-3.9%0.6213.0
EnerVest Natural Resources Series A28.4%14.1%5.8%6.9%2.0%-1.5%35.9%52.5%2.9522.8
BMO Global Energy Class26.9%13.7%6.8%-0.1%13.9%40.7%2.6120.1
Canoe Energy Income Class-A21.6%2.7579.3
Matco Energy Fund Corporate Class-F17.7%5.0%2.2%-13.6%-9.1%23.9%49.3%3.378.4
Franklin Bissett Energy Corp Class A17.5%16.5%12.2%3.7%7.0%50.1%57.4%2.5542.6
Norrep Energy Class*16.4%10.7%-0.9%-5.6%27.7%*2.6447.0
Dynamic Strategic Energy Class12.9%5.6%1.9%-5.5%-11.1%18.9%34.2%2.6138.4
Middlefield Groppe Tactical Energy A12.9%4.6%-11.9%6.6%7.7%2.9432.6
RBC Global Energy12.4%3.8%-0.3%8.3%-13.4%-5.2%19.4%40.9%2.14339.4
CI Signature Global Energy Corp Cl12.0%4.7%3.4%12.8%-4.5%-8.2%11.8%35.8%2.45107.0
Sentry Energy Growth & Income11.4%4.1%-13.4%3.6%29.1%2.80123.0
Mackenzie Global Resource Class A9.6%2.9%-0.2%7.0%1.7%-21.1%19.9%65.8%2.6279.9
S&P/TSX Total Return7.1%4.1%4.8%8.4%7.2%-8.7%17.6%35.1%
S&P 500 Composite Total Return Idx($Cdn)28.0%17.2%8.3%4.0%15.7%7.3%12.2%13.7%
* plus performance bonus of 20% on all outperformances. Source: Lipper

© 2007 The Globe and Mail. All rights reserved.

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