The biggest investment story of the fourth quarter has been the rapid decline in the price of oil.
On September 26th the price of West Texas Intermediate (WTI) crude oil was $95.55.
As I write this in mid-December it is $57.42. In less than 3 months, oil has dropped 40%!!
Over the same period, a decent sized Canadian energy name like Canadian Oil Sands stock is down 57%.
Fortunately, at TriDelta we have been significantly underweight energy during the past few months – not to say that we avoided energy completely.
Currently the only energy names we own are large, diversified names like ExxonMobil and ConocoPhillips. Exxon is down about 10% over the same period, and Conoco is down about 20%.
For our more conservative clients, we are always underweight energy as compared to the Toronto Stock index. This is simply because there is too much volatility in the sector for a conservative client to have a 25% weighting in energy (this is generally the TSX weighting in energy stocks). We find that there are too many other sectors that better fit the consistent dividend growth goal for this type of client.
For our more growth oriented clients, we simply found that there were better growth opportunities elsewhere at this stage of the market, and we don’t feel a need to be particularly exposed to every industry. We did have a couple of smaller energy investments in the past few months that didn’t do well, but we were out of them before the most significant drop.
Having said this, there will definitely be times when we are heavier into energy than we are today. This could happen shortly as we do feel that the oil price decline is clearly overdone at this point, and when the bounce happens, there will be some very quick gains. Once again, we will likely see more exposure to energy for growth clients than conservative clients.
The last few months is a good example of how TriDelta Financial tries to manage money for its clients. We are not index huggers – trying to match the TSX. We’re disciplined about the types of companies that align well with the investment objectives of our clients. In volatile times, we will be more focused on capital protection – especially for our more conservative clients. If we are able to avoid an investment collapse or two every few years, this will obviously do a great deal to help keep your peace of mind, and also provide strong investment returns over the long term.