Finding investing opportunities in oil
Trimark Investments portfolio manager Jason Whiting thinks investor complacency is one factor making it more difficult to find ideas these days.
Even though North American equity markets are at all-time highs and the VIX is at a seven-year low, Whiting, as a value-focused, bottom-up stock picker, doesn’t let the broader market impact how he runs the Trimark Canadian Small Companies Fund, which currently has a cash position of around 20%.
“It seems like people are very complacent right now, which is usually a sign of risk. When people are too calm, trouble is often around the corner,” he said. “But I’d rather be fully invested even if the market looks expensive. If I see something today that I think is cheap based on our valuation work, I want to go pretty big on that idea.”
The Canadian equity market may not be offering as many obvious opportunities today as it was six or 12 months ago in areas such as commodities, but Whiting is taking advantage of a pullback in the offshore oil and gas space, which has been hit hard as investors worry about the growth picture.
He said big oil companies are paring back capital spending as investors push for dividends and buybacks, and noted the cuts are being made in various mega-projects since it costs much more to build an oil and gas drilling platform in the North Sea than it does a shale well in the Marcellus.
Whiting pointed out that many of the companies that service this segment have dramatically sold off in the past 12 to 18 months and are trading at 52-week lows.
“Demand is going to slow, but the world still needs more barrels of oil,” he said. “Even to keep supply flat, you need a huge amount of barrels every year, and the biggest sources of untapped oil and gas anywhere in the world are offshore.”