Swanzy Quarshie, portfolio manager at Sentry Investments

Focus: Oil and gas stocks
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MARKET OUTLOOK
The crude oil oversupply problems of 2015 and 2016 have translated into an inventory problem today. In an effort to address this, OPEC and a number of key non-OPEC suppliers reached an agreement in November 2016 to reduce production by a combined volume of approximately 1.8 million barrels per day. Despite the large headline number, evidence that the cut is working has been slow to materialize due to a combination of growing U.S. production and seasonal global refinery maintenance that has weakened demand for crude oil in the short term. We believe that the production cuts are having their desired effect and are positive on the outlook for crude in the short to mid-term. Demand growth for 2017 remains healthy and will help to absorb excess inventory as refiners come out of maintenance season in the coming weeks. Additionally, we believe that there is a strong likelihood that the six-month production cut will be extended if the current cuts don’t meet the objective of normalizing OECD inventory levels.

On the natural gas front, we are encouraged by moderating North American supply and inventory levels and see the potential for higher natural gas prices in the summer under normal temperature conditions. We remain concerned with bottlenecks in pipeline infrastructure in some regions and thus expect abnormally wide price differentials for certain regions.

TOP PICKS

ADVANTAGE OIL & GAS LTD. (AAV.TO) – Cost base of $9.29, last purchase October 28, 2016 at $9.73/share
Advantage Oil & Gas is a natural gas producer with a core focus in the prolific Montney resource play in Alberta. In the last few years, the company has demonstrated an ability to grow production per share, build infrastructure and secure pipeline takeaway capacity for their production while preserving a strong balance sheet. Through these achievements, management has created one of the lowest breakeven natural gas producers in Western Canada and expects continued internally-funded growth in the high-teens for the foreseeable future. We view Advantage as one of the most prudent vehicles to gain exposure to natural gas in Canada.

RAGING RIVER EXPLORATION INC. (RRX.TO) – Cost base of $8.46, last purchase Feb 7, 2017 at $8.76/share
Raging River is an oil-weighted company with a focus in the Dodsland Viking play in Saskatchewan. We view Raging River as one of the best value creators in the basin with a demonstrated ability to organically grow production per share while preserving its balance sheet. In 2017 we expect Raging River to grow production over 20 per cent with internally-generated cash flow. With a strong management team, attractive asset base and sound balance sheet, we view Raging River as an optimal investment through the commodity cycle and see strong upside to free cash flow in a rising oil price environment.

TORC OIL & GAS LTD. (TOG.TO) – Cost base of $7.65, last purchase January 16, 2017 at $7.47/share
TORC Oil & Gas is a dividend-paying light-oil-focused company with assets in Alberta and South East Saskatchewan. We view TORC as one of the most conservatively-run companies in the basin with a business model that offers downside protection to commodity prices coupled with upside opportunity at higher oil prices. We view the recent underperformance in the company’s stock as an opportunity to gain exposure to a strong management team with an attractive asset base.
 

PAST PICKS: FEBRUARY 10, 2016

CRESCENT POINT ENERGY (CPG.TO)

• Then: $13.66
• Now: $14.82
• Return: +8.49%
• TR: +11.36%

GIBSON ENERGY (GEI.TO)

• Then: $14.91
• Now: $19.45
• Return: +30.44%
• TR: +40.88%

VERMILION ENERGY (VET.TO)

• Then: $32.46
• Now: $49.18
• Return: +51.50%
• TR: +61.66%

TOTAL RETURN AVERAGE: +37.96%
 

FUND PROFILE: SENTRY ENERGY FUND

PERFORMANCE AS OF MARCH 27, 2017:

• 1 month: Fund -3.89%, Index* -0.16%
• 1 year: Fund 2.36%, Index* 16.74%
• 3 years: Fund -14.56%, Index* -9.68%

* Index: S&P/TSX Capped Energy Index

TWITTER: @SentryInvest
WEBSITE: www.sentry.ca