While there are opportunities for long-term investors, no one should be holding their breath for a quick rebound in the manufacturing sector during the current energy price slump
Brian Tidd, lead portfolio manager for Trimark Diversified Yield Class, Invesco Canada, stands firm in the belief that there will be value by investing in the energy sector – and is dubious of any real return in Canada’s struggling manufacturing companies.
“I remember doing an interview last year and being asked the same question,” Tidd told WP, “and my view was that people are overestimating how quickly you can see a revival in manufacturing in Ontario and Quebec, and that is because there has been a real hollowing out over several years.”
Invesco has an investment in TransForce, a Canadian transport and logistics company based in Montreal, Que., and Tidd has seen how companies like TransForce have been hard hit.
“It’s going to take a while, because a lot of these guys have gone out of business over the years, or have relocated to Mexico. Things will get better over the coming year in terms of non-energy export-led growth, but I don’t think we can go back to the old days. People keep asking how long this low dollar is going to last.”
As for oil prices continuing to slosh around the low $40 per barrel mark, Tidd sees real value in those companies that are proven winners.
“We really don’t focus on investments that are macro calls. If you are talking about the Canadian market, within the energy space and sectors related to it, there is a lot of value to be had there for long-term investors, especially for the investor that is picking the right names,” he says. “The other side of that sword is the Canadian market is very much exposed to the energy space, both directly and indirectly, and if you are talking about the Canadian GDP, the story really starts to bounce on what is going to happen to energy prices.”
Tidd went on to explain that Invesco’s view on energy prices is that you have a supply/demand imbalance that has to be worked through.
“Saudi Arabia at the recent OPEC meeting basically said, we’re not going to be the swing producer, balancing out the market while all of our peers are grabbing market share at our expense,” he says. “Russia and Iran didn’t want to play ball by reining in production collectively. That could be worked through in the next year to 18 months. The positives are this year we’ve seen the demand response from low oil prices, with consumers in the U.S. and China deciding to buy an SUV instead of a compact car.”
“I remember doing an interview last year and being asked the same question,” Tidd told WP, “and my view was that people are overestimating how quickly you can see a revival in manufacturing in Ontario and Quebec, and that is because there has been a real hollowing out over several years.”
Invesco has an investment in TransForce, a Canadian transport and logistics company based in Montreal, Que., and Tidd has seen how companies like TransForce have been hard hit.
“It’s going to take a while, because a lot of these guys have gone out of business over the years, or have relocated to Mexico. Things will get better over the coming year in terms of non-energy export-led growth, but I don’t think we can go back to the old days. People keep asking how long this low dollar is going to last.”
As for oil prices continuing to slosh around the low $40 per barrel mark, Tidd sees real value in those companies that are proven winners.
“We really don’t focus on investments that are macro calls. If you are talking about the Canadian market, within the energy space and sectors related to it, there is a lot of value to be had there for long-term investors, especially for the investor that is picking the right names,” he says. “The other side of that sword is the Canadian market is very much exposed to the energy space, both directly and indirectly, and if you are talking about the Canadian GDP, the story really starts to bounce on what is going to happen to energy prices.”
Tidd went on to explain that Invesco’s view on energy prices is that you have a supply/demand imbalance that has to be worked through.
“Saudi Arabia at the recent OPEC meeting basically said, we’re not going to be the swing producer, balancing out the market while all of our peers are grabbing market share at our expense,” he says. “Russia and Iran didn’t want to play ball by reining in production collectively. That could be worked through in the next year to 18 months. The positives are this year we’ve seen the demand response from low oil prices, with consumers in the U.S. and China deciding to buy an SUV instead of a compact car.”
