In a post on October 18th I had suggested that “it is certainly possible that the pessimism has jumped the shark. There may be incredible value in the energy sector for Canadian investors.” From that date the Canadian energy sector is up some 40%. Yes, like you, I’d like to jump in a time machine, go back and put down a few hundred thousand dollars on iShares XEG ETF. The Canadian energy producers are on a nice run. Is there more to come?
Here’s that original post. Looking to the Canadian energy sector for Canadian investors.
That Ninepoint energy mutual fund mentioned in that post is up by a similar amount.
Back to iShares energy sector ETF – XEG, here are the top holdings. Yes, the familiar names.
Will energy power the Canadian stock indices?
Here’s the crazy thing. The Canadian stock market is often criticized for being too reliant on the energy sector. But the current reality is that those energy producers (stocks) have fallen so far in price, they are TSX composite weaklings. The energy sector contribution to the TSX composite is mostly pipelines and a few renewable energy stocks.
Canadian Natural Resources (CNQ) is the first energy producer to show up at #16 in the index. Suncor is #20. Combined they are at a 3.55% combined weighting for the index. For the TSX 60 (XIU) the next company to slide in is Cenovus, at .36%.
Even if the energy producers continue to surge, they will have little effect on the overall Canadian market. Energy stocks drove the Canadian stock market for quite some time. It even had its periods when it was a top performing sector. And I’m certainly not suggesting those days will return. There are many headwinds for traditional energy.
But it’s also possible that oil and natural gas will be a meaningful part of our energy mix for 15, 20 years and more. If that’s the case, Canadian energy producers might be well positioned. If that’s your belief you might have to top up your Canadian stock index fund with more direct exposure by way of energy ETFs or funds. You might hand select, and buy a few of your favourite energy stocks.
And all said, I am certainly in favour of that ongoing shift to a green, renewable energy mix. I am looking at this through an investment lens.
Weekend Reads.
On My Own Advisor Mark Seed (with the help of pension expert Doug Runchey) takes a look at survivorship benefits for CPP. One question I had asked is ‘does your spouse still get a survivour CPP pension if you pass away before you start your CPP?’ The answer is yes.
Here’s my MoneySense weekly article. I look into the Canadian banks earnings season, plus our fiscal Canadian update (deficits) and also who is targeted by those nasty (DSC) deferred service charge funds. In that MoneySense post you’ll find a video overview of the banks courtesy of Mike (The Dividend Guy) at Dividend Stocks Rock.
Also on MoneySense, Cut The Crap Investing regular Alexandra Macqueen looks into – What is universal basic income?
There’s a new post every day of the week on the Findependencehub.
On GenYMoney you’ll find a list and outline for many of the current promo offerings at the big banks. Who doesn’t like free stuff?
On Passive Canadian Income Rob offers his November update.
On Million Dollar Journey you’ll find a list of Canadian Dollar US equity ETFs. Of course, you can choose from currency-hedged and unhedged versions. On the Model ETF Portfolio page on Cut The Crap Investing, I’ve ‘suggested’ iShares XUU.
On All About the Dividends we can have a look at Mathew’s November portfolio activity. Matthew added to 3 holdings that we have in common – Enbridge, Telus and BlackRock. That’s a nice hat trick IMHO. Some nice income and value and the wonderful growth prospects of BlackRock. That US stock has been a wonderful market beater. That’s one of my two US growth picks, the other being Apple.
On The Maple Money podcast, Romana King offers how to manage your money with confidence.
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Dale
Thank you Dale for your weekly update. I have a retirement/RRIF/estate planning question and wondered if you could consult your experts. I think there may be other readers who would be interested in this topic. Bearing in mind that any RRIF funds remaining after one’s passing will be heavily taxed in one go (and therefore most likely at the highest tax rate) does it make sense for an older retiree (81/82) to draw down more than the minimum withdrawal amount ? There is a value to tax free income and growth while in the RRIF, but which action is the most prudent from a tax point of view? Take just the minimum or draw down a bit more each time so that the RRIF becomes depleted more quickly? In our case, withdrawals from RRIFs are usually reinvested. The RRIFs keep regaining most of their value and growing each year despite the mandated withdrawals. Income needs are covered by multiple pensions and non registered investments if necessary.
Hi Maureen, thanks for stopping by. As you may know, your RRIF can be transferred to a surviving spouse, tax free. But then, that really tops up the RRIF of the survivor, and when they pass, it would be taxed. I will see if I can put you in touch with Alexandra Macqueen. She is THE expert.
There is usually a tax optimal withdrawal strategy based on a few assumptions.
Dale
Thank you so much Dale. We are each hoping for another 15 years, based on current health and family history, but you never know. The pandemic has made us increasingly aware of estate planning issues! I have always enjoyed your contributions to Seeking Alpha and your Sunday posts!
Hello Maureen and thanks for the “shout-out,” Dale!
Maureen, this is a financial planning question. At a general level, if you want to minimize total tax paid, you would probably take out more than the RRIF minimum each year. As long as you are not spending the withdrawn funds, you are not risking falling short during your lifetime – you are just changing how (where) the funds are held.
If you would like a more detailed answer, that takes into account your specific circumstances, feel free to reach out to me at alexandra@pensionacuity.com.
To blend those two ideas of traditional energy and a greener/renewable transition, it will be interesting to see how the natural gas sector fares once the Kitimat LNG terminal is finally completed. I’m thinking we’ll likely see some more consolidation in the Montney, but will the exports and additional revenues make any impact on the energy sector weighting? The larger players obviously believe in it as CNQ has snatched up additional production very cheap and RDS has invested has a substantial amount in the project.
Thanks for the mention Dale.
Nice to see energy going up again a bit.
Yup. I’m a fan of a sensible green shift, but for now, we could use this sector firing on more cylinders. These producers will be the main driver of green technologies as well.
Dale