It isn't easy being an index beater.
But fund manager Normand Lamarche has managed to do so in his Front Street Special Opportunities Fund by focusing on thematic investing, and smaller resource companies.
The $280-million fund is now the top performer over the decade ending Oct. 31, with an annualized return of 26 per cent, and a 121-per-cent return year to date. The S&P/TSX composite index has posted an average annual return of 4.1 per cent.
"The index is a reflection of the past," says the 47-year-old portfolio manager at Toronto-based Front Street Capital. "We are interested in what the index is going to look like five years from today...
"We look at new emerging opportunities that could some day create economic momentum that can deliver a company or group of companies to represent a significant part of the index five to seven years from today."
Given continued market uncertainty, we asked Mr. Lamarche for his market outlook and views on commodities.
The markets have rebounded since the March lows. Will we retest them?
I don't think so. I think that what led to the obscene lows and the distressed period was a point in time where the whole financial system broke down...I think the financial system underpinned by the banking system is in greater shape today because of the enormous fiscal and monetary measures that governments and central banks worldwide have thrown - not only at the economy - but also at the banking system itself.
In this market, where do you see the opportunities?
We are focusing on energy and basic materials. The massive growth profile of the BRIC nations [Brazil, Russia, India and China] have had a profound impact on commodity demand worldwide...But we also find the supply side just as compelling. This whole industrialization has enriched, and more importantly empowered commodity-producing nations like Russia, Venezuela and the Middle East...
The net of it is that it has become very difficult for the Western world's resource companies like BHP Billiton and Exxon Mobil to do new business as access is not only difficult, but also expensive as these governments want a piece of the action. The Chinese are also buying [commodities] they deem to be of strategic value to them longer term. Part of our strategy is to own the types of things that they deem to be of significant and strategic value.
Do you believe in the peak oil theory suggesting the world is running out of oil?
No, I don't buy that concept. I think the biggest impact [on a higher oil price] has come from geopolitical reasons. It's the result of guys like [President Hugo] Chávez in Venezuela, who has been nationalizing Western companies out of their assets, and guys like [Prime Minister Vladimir] Putin in Russia who have been playing strong-arming companies out of their assets...And Alberta has effectively imposed draconian new fiscal terms, and pushed out new growth. That has had a greater impact on the supply side.
Do you think oil is going back to $150 (U.S.) a barrel?
"I don't see that any time soon. The world today probably has inventories that appear excessive short term...I wouldn't be surprised to see oil prices in the $80- to $100-range in a couple of years. If the economic growth worldwide continues to surprise us and grows at a faster clip than we believe, oil can go higher.
You are not bullish on natural gas. Why?
There is too much supply largely because of the evolution of new technologies that are allowing oil and gas companies to produce and recover natural gas from difficult horizons. The shale plays in the United States are substantial. In Canada, we have Horn River and Montney shale plays.
