All energy funds were hit pretty hard in 2015, and unfortunately this was hit hardest, losing more than 38%. There were a few reasons for this underperformance, including its higher exposure to small and mid-cap names which were sold off more violently than their larger cap brethren. It also had a higher portion of the fund invested in Canadian names compared to its peers, resulting in less of a currency boost.
While I see 2015 as a bit of an anomaly for this fund, I believe there are better options available. My picks for those looking for pure energy exposure would be Canoe Energy Income Fund (GOC 2001 – Front End Units) or Canoe Energy Fund (GOC 501 – Front End Units), Both are managed by Ravi Tahmazian, who uses a macro analysis to find the subsectors in the energy space that he believes are well positioned for the expected environment. He focuses not only on oil and gas, but also pipelines, renewables, and energy service companies. He looks for companies where management has their interests aligned with the investors. He analyzes the quality of the business, its balance sheet and properties. It’s pretty Canadian focused, which given the manager’s background is a good thing. Although, at the end of November, he held about 20% in U.S. names.
The manager is not afraid to move into cash when he feels there are no suitable investment opportunities, or the sector is poised for a fall. He will also invest in bonds when the opportunity is available. In the Income fund, he has about 25% in bonds, and just under 20% in the Energy Fund.
I like the manager. He has a lot of experience in the industry, and has done a stellar job with these funds since he took over. He has managed to outpace many of his rivals, and do so with less volatility and stronger downside protection. Still, the funds are significantly more volatile than the broader equity markets.
I also like that while he doesn’t play an active role with the fund, manager Rob Taylor is at Canoe. This is a big positive for me, given Mr. Taylor’s success at BMO running their global energy mandate. Should anything happen to Mr. Tahmazian, Mr. Taylor could step in and manage the fund without missing a beat.
I’d probably lean towards the Energy Income Fund because it tends to invest in slightly larger companies that pay a dividend. It’s currently yielding just under 5% or so. It also pays a monthly distribution of $0.039 per unit.