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PAPE REPLIES: INVESTING IN RESOURCES
7/27/2017 8:33:15 PM
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Wealth Builder
Gordon Pape writes on common-sense wealth-building strategies.



By Gordon Pape  | Monday, July 10, 2017


Q – I try to spread my individual security choices across the main sectors. One challenge I have always faced is choosing companies within the resources and commodities sector.

I’m a relatively new investor. I currently only hold one security in that sector, and that’s Suncor. I chose it because of the high volatility of the sector and the strong market capitalization of the company.

However, this sector includes more than just oil. I have chosen no companies in the precious metal sector or any other commodity. This is simply because I don’t know how to select them, and I worry about their volatility.

My question is this: Should I invest in an ETF or a small basket of ETFs that helps allocate my funds appropriately within the sector, or should I choose individual companies? If I am choosing individual companies, which groups within the sector do I choose? One oil and gas, one gold, one copper, one lithium, for example? I wouldn’t know where to begin.

If the former is the way to go for me, do you recommend any ETFs or mutual funds that satisfy my goals? – Lance R.

A – We have several stocks on my newsletters’ recommended lists that would provide exposure to a range of resource sectors. For precious metals, I like Franco-Nevada Corp. (TSX: FNV), which has performed very well. For copper, look at Lundin Mining Corp. (TSX: LUN). Teck Resources Corp. (TSX: TECK.B) is Canada’s largest diversified resource company, with mining operations focused on copper, steelmaking coal, and zinc. As well, it has energy interests in the Foot Hills Oil Sands project, which is scheduled to come into production next year.

If you prefer an ETF, the iShares S&P/TSX Capped Materials Index ETF (TSX: XMA) provides exposure to all types of resource stocks except oil. Top holdings include Barrick Gold Corp. (TSX: ABX) , Potash Corp. of Saskatchewan Inc. (TSX: POT), Agrium Inc. (TSX: AGU), and Franco-Nevada. However, over half the portfolio is in the gold sector, and returns have not been great, with an average annual compounded rate of return of only 1.4% over the three years to May 31.

There are many natural resource mutual funds that include energy stocks in their portfolios along with mining and other resource companies. However, most have unimpressive track records – some have posted average annual compounded losses of more than 20% over the past three years.

However, one that’s worth a look is the FundGrade A-Grade-rated Scotia Resource Fund, which has a 3-year average annual compounded rate of return of 2.6% as of May 31, and a one-year gain of 7.8%. It is a no-load fund that invests internationally. Some of the top positions are in NexGen Energy Ltd. (TSX: NXE), Lundin Mining, Agnico-Eagle Mines Ltd. (TSX: AEM), and TransCanada Corp. (TSX: TRP).

My own preference would be to focus on the individual stocks I have mentioned. – Gordon Pape

If you have a money related question send it to me at gpape@rogers.com. Write “Fund Library Question” in the subject line. I can’t guarantee a personal response, but I’ll include the most interesting ones in this column.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investornewsletter, which are available through the Building Wealth website.

For more information on subscriptions to Gordon Pape’s newsletters, check the Building Wealth website.

Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.

Notes and Disclaimer

© 2017 by The Fund Library. All rights reserved.

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.

BUILDING WEALTH WITH GORDON PAPE
 

 
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