Norm Lamarche is betting the energy rally that helped him become the top performing mutual fund manager focused on Canada this year will roll into 2017, sweeping drillers and other services companies higher.
Mr. Lamarche, fund manager at Toronto-based Logiq Asset Management Inc., expects crude prices to grind into the $55 to $60 a barrel range next year from about $52 now. That means more gains ahead for oilfield services companies he owns such as Canyon Services Group Inc., Calfrac Well Services Ltd. and Trican Well Service Ltd., he said.
"They will be positioned in a market of growing sales momentum, and they've already pushed through some price increases so there's a potential for more there," he said in an interview last week. "We've been big fans of what's taken place in this energy renaissance."
Mr. Lamarche's Front Street Special Opportunities Class fund, with $151-million under management, returned 63 per cent as of Dec. 13, top among 467 funds with at least $100-million in assets invested primarily in Canada, according to data compiled by Bloomberg. That puts it almost 6 percentage points ahead of its peers and more than triple the 18-per-cent gain in the S&P/TSX Composite index.
The fund has a 75-per-cent weighting in oil and gas and energy-equipment services, with another 21 per cent in metals and mining, according to the fund's fact sheet. Logiq, launched last week after a combination between Aston Hill Financial Inc., Front Street Capital 2004 and Tuscarora Capital Inc., manages about $2.5-billion.
'Why Stray?'
The rebound in mining and energy stocks that has driven Canada's S&P/TSX to the best performance among developed markets this year has figured heavily in Mr. Lamarche's outpeformance.
The fund owns low-cost producers such as Birchcliff Energy Ltd., which has more than doubled, after it made a "fairly dramatic acquisition" this year in a $625-million deal for Encana Corp.'s Gordondale assets, Mr. Lamarche said. Other winners include Crew Energy Inc. and Xtreme Drilling Corp., climbing at least 68 per cent.
"Cost to me is everything," Mr. Lamarche said in an interview last week. "Why stray away from the most efficient, low-cost, well-run companies? They will benefit just as much from higher prices while growing with their heads above water whereas everyone else is on the outside looking in, hoping for higher prices."
Nervous Investor
His biggest winner was in mining: Vancouver-based Arizona Mining Inc., which owns a zinc-lead-silver deposit, has soared almost nine fold. Another holding, Newcastle Gold Ltd., is up 133 percent, buoyed by gold's first-half rally.
Mr. Lamarche was attracted to Arizona Mining by its management team. He praised Richard Warke, chairman of both Arizona Mining and Newcastle Gold for his previous success with Ventana Gold Corp. The junior gold miner was developing a property in Colombia and was later sold to Brazilian investor Eike Batista in a C$1.09 billion deal in 2011.
"I went into the year nervous about the base metals, and I'd been underweight in them the past few years as a result of the state of the world economy so I was exceptionally defensive," he said. "There were a lot of forces out there that weren't really conducive to businesses investing."
Instead, industrial metals producers surprised investors with the strength of their resurgence. The S&P/TSX Materials Index is up 38 per cent, the best of 11 sub-groups. Teck Resources Ltd., the largest diversified miner, is up more than five-fold as the top stock in the S&P/TSX Composite.
Looking ahead to next year, Mr. Lamarche is keeping his focus on energy and remains skeptical of the rally in base metals, acknowledging he largely missed out on big winners like Teck. Yet his fund's mandate means he'll be watching out for more pleasant surprises.
"I've been surprised by the significance of the move and I'm still challenged by the way they've moved," he said. "As the name of the fund suggests, it's a special opportunities fund. We're always looking for more names like Arizona in both energy and other segments as well."