SHOULD WE BE WORRIED ABOUT OIL’S RAPID DESCENT? After having tracked steadily upward from a sub-$30 valley reached in early 2016, crude oil abruptly reversed course in mid-October, plunging by almost a third in just a few weeks. Because oil and gas remain key inputs to global growth, concerted price moves can sometimes provide clues to underlying economic health, even before changes in course show up in GDP and other key figures. If, for example, price is falling due to a drop-off in demand, it’s not unreasonable to surmise that general business activity has also cooled.
Click here to read more: DM-Monthly-Report-Dec-18
CANADIAN OIL: WHAT’S THE DIFFERENTIAL? Beginning in August of 2018 the differential between Western Canadian Select (WCS) and West Texas Intermediate (WTI) widened from <US$20/bbl to $50/bbl. In this note we will address why differentials have increased, our rationale for an average $25-$30/bbl differential in 2019, the low $20’s/bbl in 2020, and a longer-term view. In sum, we do not believe that panic is warranted.
The writing has been on the wall that a sub-$20/bbl differential was not sustainable. Utilizing Canadian production forecasts from CAPP and adding up available pipeline capacity, a clear gap between the two was emerging for late 2018/2019. With no pipeline capacity expected to start until late 2019, this production would have to be transported by rail.
Click here to read more: Cardinal Update – December 2018
VPI CANADIAN BALANCED POOL PASSES 10-YEAR MARK – A little over a decade ago, a financial services firm based in Winnipeg called Value Partners Investments (VPI) hired Dixon Mitchell to manage a soon to be launched balanced mutual fund. Since that time, VPI has flourished to become a significant player in the Canadian fund and advisory space, while DM has added assets, expanded our portfolio management team, and continued to hone our equity and fixed income investment processes. As both firms have grown, so has the size, following and track record of the VPI Canadian Balanced Pool.
At inception, VPI set the asset mix ranges for the fund with fairly wide bands, allowing DM a high degree of management flexibility and the ability to provide unit holders with an investment experience very similar to that of our typical internal client with a balanced asset allocation:
Click here to read more: DM-Monthly-Report-Nov-18
PROTECTING AGAINST THE BEAR – Over the past few years, Cardinal has been making a shift to our portfolios to become more defensive and protect against a market decline. There are two types of market declines that we pay close attention to; corrections and bear markets. A correction, typically a decline of around 10%, can occur sporadically every few months or after multiple years. They have been less frequent since the Great Recession of 2008/2009. Corrections typically do not last very long and are not usually a cause for concern. They are often seen as a healthy reset for the market when optimism has been growing faster than underlying market fundamentals. They also give long-term buyers a chance to buy stocks at bargain rates. A bear market, defined as a 20% pull back or more, is usually led by more serious underlying market concerns. A bear market can occur in tandem with a recession, but not always.
Click here to read more: Cardinal Update – November 2018