The Genus Cap­i­tal Man­age­ment CEO and chief in­vest­ment of­fi­cer makes the case for ditch­ing fos­sil fu­els and shares his 2019 out­look

BC Business Magazine - - Contents - By Nick Rockel

Genus Cap­i­tal Man­age­ment CEO Wayne Wachell doesn’t need fos­sil fu­els to turn a profit

1 How much does Genus Cap­i­tal man­age, and how do you ap­proach in­vest­ing?

Genus man­ages about $1.5 bil­lion of as­sets, and we’ve been around for com­ing up to 30 years [in 2019]. We’re a quan­ti­ta­tive firm; we have mod­els that help us select stocks. We look at dif­fer­ent fac­tors, like value, growth, mo­men­tum and tech­ni­cals, to help us build mod­els that have some pre­dic­tive abil­ity. We also have a macro model to help us make de­ci­sions on the as­set-mix side.

We have $1 bil­lion of wealth man­age­ment and $500 mil­lion of foun­da­tion, in­sti­tu­tion­al­type monies. About $500 mil­lion is this fos­sil-free, ESG [en­vi­ron­men­tal, so­cial and gov­er­nance]–type man­date. It’s the fastest-grow­ing part of our busi­ness. It’s grown from $75 mil­lion five, six years ago.

2 Van­cou­ver-based Genus was early to the di­vest-in­vest move­ment. Why did you go down the path of di­vest­ing

We had clients at the fore­front of the space, like [the] David Suzuki [Foun­da­tion]. They came to us and said, “Look, we don’t want our cap­i­tal con­tribut­ing to cli­mate change.” You’ve got to draw the line some­where, and our clients drew it at com­pa­nies that pro­duce, re­fine and trans­port hy­dro­car­bons.

We’ve been man­ag­ing so­cially re­spon­si­ble money for 25-plus years, and so this was a new ad­di­tion to the [in­vest­ment] screens we had, and an im­pact­ful one, when you think of how ex­posed Canada is to the en­ergy sec­tor.

I’ve been say­ing for five years, I don’t need hy­dro­car­bons to get per­for­mance. Our re­search bears it out, and also our live per­for­mance.

3 Oil and gas play a big role in the Cana­dian econ­omy, and

En­ergy is 6 per­cent of global cap­i­tal mar­kets. It’s only here in Canada that we have ex­po­sure. Canada it­self is a small cor­ner of global cap­i­tal mar­kets, as is en­ergy. So there’s a lot of other choices and al­ter­na­tives out there to cre­ate wealth.

We went back 45 years and did sim­u­la­tions to take out the en­ergy sec­tor and re­place it with oth­ers that have sim­i­lar cor­re­la­tion or co­vari­ance to en­ergy—eco­nom­i­cally sen­si­tive sec­tors. We dis­cov­ered that we could take out [oil] and have more tech­nol­ogy, fi­nan­cials, con­sumer dis­cre­tionary and tele­com. Those four sec­tors tend to over­weight in our fos­sil-free man­dates, and they have cor­re­la­tion with en­ergy, the same kind of eco­nomic sen­si­tiv­ity. And when you do that, man­age the risk mod­els, look at all the cor­re­la­tions, re­place en­ergy with those other sec­tors, you ac­tu­ally get bet­ter per­for­mance.

5 What's your fore­cast for 2019?

This has not been a bad year; 2019 is not go­ing to be as good. We’re in the lat­ter stage of the eco­nomic cy­cle, and usu­ally in that pe­riod, re­source-based economies and eco­nom­i­cally sen­si­tive sec­tors tend to do well. So it shouldn’t be that bad an en­vi­ron­ment for in­vest­ing in Canada, if the trade war doesn’t drag ev­ery­thing down.

We’re very pleased with the NAFTA agree­ment. We think Europe will prob­a­bly do a deal with the U.S. next, and that the U.S. ad­min­is­tra­tion is try­ing to iso­late China and put lever­age on them by get­ting deals done with ev­ery­body else.

Rates are ris­ing and there’s go­ing to be more volatil­ity, but we’ve been fo­cus­ing on the eco­nom­i­cally sen­si­tive sec­tors into next year and watch­ing in­fla­tion. So far, so good.

from fos­sil fu­els and in­vest­ing in cli­mate change so­lu­tions? many Bri­tish Columbians are ex­cited about the re­cently ap­proved liq­ue­fied nat­u­ral gas fa­cil­ity in Kiti­mat. What do you say to in­vestors who see fos­sil fu­els as an im­por­tant part of their port­fo­lio?

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