BALANCED TAKE ON THE ENERGY PATCH
Sentry Energy Growth and Income Fund portfolio managers Mason Granger and Swanzy Quarshie have been increasing their exposure to natural gas in 2014 in spite of a more optimistic view on oil prices.
“There is an opportunity for cash-flow growth in the natural gas space because prices are a little healthier this year,” Ms. Quarshie said.
The managers are confident in the mid- to long-term opportunity, as gas currently trapped in North America will eventually be exported overseas as LNG, but anticipate some short-term pain because recent price increases are considered a function of weather.
As a result, they are avoiding pure-play natural gas stocks since many won’t generate significant free cash flow with prices at $3.50 or $4, and turning to more 50/50 oil and gas producers.
Ms. Quarshie and Mr. Granger noted the bearish thesis for oil this year was based on the market having plenty of spare capacity. However, four countries — Iraq, Iran, Nigeria and Libya — had a total of 2.5 million barrels of oil off-line at the end of 2013, and political upheaval in Venezuela further threatens supplies.
The managers “index indifferent” approach means their 30-name portfolio includes just two companies in the S&P/TSX Capped Energy i ndex’s top 10 holdings. “The big-cap names struggle to replace reserves and production every year,” Mr. Granger said, noting this typically leads to low single-digit growth.
Approximately 66% to 75% of the portfolio is geared toward income generation with a target total return in the 10% to 15% range, while the remainder of the fund focuses on growth with a return objective of about 25%.
Energy services account for 13% of the portfolio and energy infrastructure makes up another 16%.