Looking for global exposure
As a portfolio manager with a strong background in energy, Arrow Capital Management’s Alex Ruus usually has above-average exposure to oil and gas.
Yet the sector these days only represents about 9% of the Exemplar Leaders Fund due to Ruus’ cautious outlook. “We’ve got a glut of natural gas in North America so it’s hard for producers to make really good returns,” he said.
The manager considers oil a strong commodity, but pointed out that its trading range is between US$75 and US$110 per barrel and the market’s expectation is at the higher end, so a lot of stocks are a bit expensive. He prefers buying when commodity prices are weaker or if there is panic in the market.
“Those are usually the best opportunities to get really good values in the energy area,” the manager said, adding he owns derivative plays on energy.
One of those is Dutch chemical company LyondellBasell Industries NV, which has large North American operations. “Energy companies aren’t in the best position to benefit from cheaper gas prices, but the consumers of gas are, including industrial consumers like Lyondell,” Ruus said.
Both the Leaders Fund and the Northern Rivers Conservative Growth Fund LP, which was started in 2005 and is almost identical in positioning, take large concentrated positions. The top 10 holdings typically represent more than half the value of the fund, while the top 20 makes up more than 70%. The number of positions is generally capped around 50.
Canadian names make up roughly two-thirds of the Leaders portfolio and foreign names (mostly U.S.) account for the rest, but less than half of the fund’s revenue exposure is to Canada.
“Most of the companies tend to be global,” Ruus said. “Among large caps, we target industry leaders. With small caps, we look for the leaders of tomorrow.”