Manager: Ryan Bushell, Leon Frazer & Associates Investment Counsel
Fund: IA Clarington Canadian Conservative Equity Fund
Description: Long-term, dividend-focused core Canadian equity fund
Performance: 1-year: 5.8%; 3-year: 7.2%; 5-year: 4.0%; 10-year: 7.7% (as of Dec. 31, 2012)
For a portfolio manager focused on long-term investing and dividends, Canadian pipelines, utilities, banks and telecommunication companies are a logical place to be.
As a result, these sectors account for the bulk of the IA Clarington Canadian Conservative Equity Fund, which dates back to 1950 when it was known as the Children’s Fund.
“Even those interest-rate sensitive stocks will perform better than other asset classes when rates rise because they are equities,” said Ryan Bushell of Leon Frazer & Associates Investment Counsel, which serves as the fund’s sub-advisor. “We also feel dividend-paying stocks are the most logical destination for money being repatriated out of the bond market.”
The fund’s next largest weighting at roughly 34% is the Canadian energy space, reflecting the firm’s long-standing goal to expose clients to the backbone of this country’s economy. However, fund’s co-manager also sees opportunities for energy producers after it was the worst-performing group on the TSX in 2012.
“People are talking a lot about all the oil production in the United States,” Bushell said. “But it’s still getting harder to find and more expensive to produce, while demand is still on a steady growth path.”
The manager highlighted CNOOC’s acquisition of Nexen Inc. and Petronas’ acquisition of Progress Energy Canada Ltd. as examples of long-term focused investors, such as state-owned oil companies, looking to buy Canadian assets.
The fund’s energy holdings yield an average of approximately 4% and include a mix of higher yielders that offer lower dividend-growth prospects and vice-versa.
“Overall, we view the demand picture as more stable relative to something like gold, which is as much about investor speculation than physical demand,” Bushell added, highlighting the fund’s underweight in materials and mining.
For gold companies, he would like to see higher yields before considering them for the fund. “The cash flow that is there today could come back down if the price falls. So for it to be real for us, we need to see that dividend increasing at a meaningful rate consistently.”
Cenovus Energy Inc. (CVE/TSX)
The position: Core long-term holding.
Why do you like it? In addition to sticking to its initial commitment to a rising dividend, Bushell likes Cenovus’s long-life reserves.
“They also bring on production with a manufacturing-like approach. The tougher parts of a reservoir come on first. They try to learn about it and perfect their technique before drilling what they think is the best spot,” he said. “Cenovus is constantly increasing production guidance, while coming in under budget and on schedule.”
Biggest risk: Weaker oil prices.
Crescent Point Energy Corp. (CPG/TSX)
The position: Core holding.
Why do you like it? The market may have tired of Crescent Point’s acquisition-driven equity issuances in 2012, but Bushell noted the company more than doubled the life of its reserves for only about $3-billion.
“They took advantage of a bad year in the sector to increase their ability to be a going concern,” he said.
Bushell added that management has maintained the dividend, hedged oil prices to protect against potential weakness, and kept its debt in line with cash flow.
Biggest risks: Executing a new play in Utah and a waterflood program.