A hefty Canadian equities position has enabled the Sanlam Four US Dividend Income fund to benefit from a rebound in the oil price without taking direct exposure to the commodity, according to manager Adour Sarkissian.
The fund is underweight oil relative to its benchmark index, but does have a 10 per cent position in Canadian equities.
This is primarily via telecoms company Bell Canada, but Mr Sarkissian said he viewed this position as a way to stay underweight oil and still benefit from a rise in prices, given the Canadian economy’s dependency on the commodity.
“[As the Canadian dollar] is so correlated to the oil price it doesn’t worry me too much to be underweight energy, because if oil goes up I can have a natural tailwind from the currency,” he said.
The fund does not hedge currency as Mr Sarkissian believes it is too difficult to predict these fluctuations.
The Canadian dollar fell 13 per cent against sterling last year amid a 33 per cent fall in the price of Brent crude, but the manager said the currency would rebound in time.
He said: “It’s a decision we’ve taken to not hedge currency, because we are not experts. But last year it has hurt to own Canadian currency because it has weakened significantly.
“It cost us a lot last year. Since I’ve been managing this strategy, from 2007 onwards, I’ve always benefited from owning Canadian currency versus the [US] dollar.
“Last year things turned very rapidly the other way.”
Mr Sarkissian has also reduced the fund’s position in staples by taking profits on a position in Campbell’s Soup, which had doubled in value since purchase, and in telecoms after prolonged strong performance, such as by US provider AT&T.
“We’ve reduced our winners to buy the losers in the market,” the manager said.
Despite his Canadian position, he said these “losers” did include oil companies.
In February, Mr Sarkissian put 1 per cent of the fund in petroleum contract drilling firm Helmerich & Payne, and has topped it up to 2 per cent since the original purchase.
13%: Fall in Canadian dollar against sterling last year
10%: Sanlam Four US Dividend Income fund’s position in Canadian stocks
“It had a very high dividend yield and it is a leader in the onshore oil drilling space,” he said.
“When oil fell lower than $30 a barrel [earlier this year]and [Helmerich & Payne] was hit with that...we thought it was a great opportunity to pick up some of those companies.”
But the biggest worry the manager has for the fund is not a market crash, but rather the prospect of economic improvement.
The defensive nature of the portfolio meant that it did best when markets fell, he said.
“Bad news in the market is good news for this fund. The worst thing is if we get a mega boom in the US economy and then there’s [strong] GDP, this product will do very badly,” he explained.