Greg Dean's blog

Good time for some mental gymnastics

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With many people on, or starting to take vacation, we thought it would be an opportune time to share our thoughts on some interesting summer reading.

Steve, Brandon and I collectively assembled our top three. In no particular order they are:

Start-Up Nation, by Dan Senor and Saul Singer – a very interesting look into the root of the Israeli entrepreneurial spirit.

"What do we do if interest rates go up?"

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Those of you who are longstanding followers of Cambridge undoubtedly appreciate that we hate to lose money. We are always trying to find areas of the market where risk/reward is skewed in our favour, and avoid areas where we are not being very handsomely compensated to take calculated risks. One of the areas that we have been very judicious with our allocations over the last year has been income-oriented equities.

Interesting article on oil

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We have spoken at length about the thesis supporting our negative view on oil prices. We have spent a great deal of time not only understanding both the supply and demand drivers for oil, but also speaking to stakeholders across the value chain (refiners, shippers, producers) to ensure we understand it from a global perspective. I want to pass along this article, which highlights many of the concerns we've identified.

Oil Shockwaves From U.S. Shale Boom Seen by IEA Ousting OPEC

A great example of smart income

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We've long talked about how important it is to be selective when looking at income-oriented stocks or mutual funds, given the valuations and where interest rates are today. We are still finding some great opportunities, but it is tougher and they aren't the “plain vanilla” TSX 60 type ideas that many of our peers own.

We wanted to highlight a name that we have owned for some time and have been recently adding to in the income and asset allocation funds.

Brookfield Infrastructure Partners is an $8B market cap “utility-like” stock that recently reported strong results.

Why a global perspective is important

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We talk a lot about how Canada is a thin market, especially when you venture out of banks and resources. Asset managers are a great example, as there are really only four of significance that are publicly traded in Canada: CI Financial, AGF Management, Fiera Capital, and IGM Financial (Investors Group/Mackenzie). These businesses are driven by 1) Market performance and 2) Net sales. The table below illustrates the correlation between growth in assets under management (AUM) and share price performance (for the year ending March 31, 2013).

Why we still like U.S. food retailers

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We have been talking for some time about how the U.S. economy is quietly improving despite the negative news we hear each day. Bad news makes for attention-grabbing headlines, but we at Cambridge focus our time and energy on speaking to companies. That is why we weren’t caught up in the anxiety over the fiscal cliff, the debt ceiling and other events.

Energy Update

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I thought it would be helpful to provide a brief lay of the landscape for the energy sector in terms of expectations for differentials in oil and gas pricing. The amounts of both oil and gas in storage are about 15-20% above their respective five-year average levels. However, oil production is growing substantially and gas production domestically is flat year over year. We expect oil to go lower (still) while the natural gas market is tight and a small demand increase could drive a shock.


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