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Getting Exposure to the Canadian Energy Industry

With oil prices falling to 52 week lows,  energy company stock prices are following suit with their own aggressive decline.  These low prices are bound to attract value investors like a number of readers that have recently contacted me. The main theme of the questions are: “how do I obtain exposure to the Canadian energy sector?”

One thing to clarify, any investor who has exposure to the Canadian stock market index has exposure to the Canadian energy sector. Approximately 25% of the TSX index are energy companies.  But what if you want  concentrated energy exposure?  There are a number of ways to get exposure to the energy index, they range from easy to a little more involved.

Energy Sector Investment Options

1. Energy Mutual Funds. The easiest method perhaps it to call up your favorite bank and ask them for a mutual fund that invests in the energy sector.  However, sometimes the easiest choice isn’t the best long term solution.  Studies have shown time and time again that mutual funds perform poorly over the long term.  In other words, most funds charge high fees to under-perform the index.  As you can see, I’m not a fan of the mutual fund option.  Avoid if you can.

2. Energy Sector Index ETFs. For investors who are willing to take matters into their own hands with do-it-yourself (DIY) investing with a discount brokerage (my comparison of brokers), ETFs are an easy and cost efficient way to get exposure to a particular sector.  Here are some ETFs that cover the Canadian energy index.

  • XEG - The iShares S&P/TSX Capped Energy Index ETF is perhaps the most popular with the highest liquidity. Out of their 58 holdings,  their top five are Suncor, Canadian Natural Resources, Cenovus Energy, Encana and Crescent Point Energy.  Although the most popular energy ETF, it’s also the most expensive with a MER of 0.60%.
  • ZEO - The BMO S&P/TSX Equal Weight Oil and Gas ETF has the second highest volume of traded shares.  This one is more concentrated with only 16 holdings.  The top 5 holdings are TransCanada Corp, Pembina Pipeline, Enbridge Inc, Imperial Oil, and Encana Corporation.  This one also has a hefty price tag of 0.55%.
  • HXE - Horizons S&P/TSX Capped Energy Index ETF has the lowest volume of the bunch, but also the cheapest with a MER of 0.35%.  It follows the same index as XEG with the same holdings, but with a much lower annual fee.

3. Buying Individual Companies.  This third option of buying individual stocks is for the investor who is willing to take on a little more risk and has more time to manage their portfolio.  As a dividend investor, I typically buy companies that have a reasonable payout ratio,  a long dividend history, and a corporate mandate of increasing their dividend when possible.  A number of companies in the energy index fit the bill such as Suncor, Canadian Natural Resources, TransCanada Corp, Enbridge, Imperial Oil and Ensign Energy.  Here is an article explaining when to buy dividend stocks.

Those are some of my ideas on getting exposure to the Canadian energy sector.  What are your thoughts?  Have you been buying during this energy correction?

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Starting or Growing a Business? Take Advantage of Business Support Organizations

In previous posts, we looked at different business models and how to write a business plan to aid entrepreneurs. In addition, having a helping hand during the initial start-up phase and subsequent operational stage of a business will go a long distance in paving the way for a successful venture. This post will look at some of the non-financial support avenues available in Canada; for financial support programs, please refer to the following older posts:

Canada Small Business Financing Program
Government-funded Business Financing Programs

Canadian Chamber of Commerce

As is well known, the Canadian Chamber of Commerce is the country’s largest and most influential business network. There are over 450 chambers across Canada including provincial and city associations. They are a non-profit organization that works to fulfill community or area needs by serving as a bridge between businesses and the government and influencing public policy to benefit the business community.

BDC Consulting

BDC Consulting is an arm of the Business Development Bank of Canada. Its network of professional business advisers assist entrepreneurs in evaluating, planning and executing cost-efficient solutions for business development. BDC services include:

  1. Start-up advice such as business planning and financial planning
  2. Market study, export planning and subsequent business strategies
  3. Process improvement through optimization of existing operation, reduction of waste and ISO certifications
  4. Innovation through research and development
  5. Human resources management including succession planning

BDC’s list of business centers in every province and territory can be found here.

Supply Chain Management Association

The Supply Chain Management Association (SCMA) is a non-profit organization that serves as the primary source of supply chain training, education and development in Canada. The SCMA handles various aspects of supply chain including purchasing, sourcing, contract and inventory management and logistics.

It has around 8000 members (from Manufacturing, Government, Natural Resources, Health Care, Education, Services and Retail) and was the first supply chain association in the world to call for members to adhere to a Code of Ethics. Through its ten Provincial and Territorial Institutes, SCMA grants the Supply Chain Management Professional (SCMP) designation, which is the highest accomplishment in the field and the mark of supply chain leadership. The association organizes seminars, training and accreditation programs as part of its service package to members. Details about how to join the SCMA can be found here.

WEConnect Canada

WEConnect Canada was launched in March 2009 with the support of corporate members and Status of Women Canada to assist in the business endeavors of certified women enterprises and corporate members.

The organization strives to associate women business enterprises with the global supply chain to create market opportunities. They progress toward this goal by facilitating relations between members to speed up the development of women-owned businesses and promote diversity in corporate and government supply chains. Information about how to become a member can be found here.

A comprehensive list of business support organizations can be found on this Canada Business Network page including province-specific associations.

Have you used one of the business support organizations to start and/or grow your business? If so, do you have any stories to share?

About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.

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  • DanielC: SST could you provide some info’ on Private Equity in the energy market? (how to access it, where...
  • Ed Rempel: Amit, No problem. Just buy the new stock. The key test is that you can trace that the borrowed money was...
  • Ed Rempel: Hi Tony, If it’s all invested, all the interest should be tax deductible. I wouldn’t do your...
  • SST: There is a fourth avenue of energy sector investment: Private Equity. The three options listed are all, first...
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  • Alan W.: This is a very good list for an energy Neo-phyte such as myself. Would “Energy” funds also look...
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