Tapping into oil output fueling Canada's growth

Alan Radlo, the former Fidelity Investments manager who started this month at CI Financial Income Fund, put two-thirds of a new global fund in Canadian stocks because he expects energy companies to prop up the economy.

Radlo, 50, is running a group of three mutual funds for Toronto-based CI Financial, the manager of $62.6 billion in assets. The global fund, which may invest anywhere in the world, will keep about half of its holdings in Canada in the longer term, spokesman Murray Oxby said.

Booming oil prices are fueling growth in Alberta, whose tar sands house the world's largest pool of oil reserves outside the Middle East. Radlo, who started investing the fund Jan. 3, has bought shares of Calgary-based AltaGas Income Trust, Inter Pipeline Fund, and Keyera Facilities Income Fund. He also has bought Canadian financial firms Manulife Financial Corp. and the Toronto-Dominion Bank.

"Canada's economy is much better positioned than the U.S., and it doesn't have nearly as many problems as the U.S.," Radlo, who is based in Boston, said in an interview last week. CI Financial is Radlo's first employer since he left Boston-based Fidelity, the world's biggest fund company, in December 2006.

The United States is probably slipping into recession amid a housing slump and the subprime-loan crisis, predict the Goldman Sachs Group Inc., Merrill Lynch & Co. Inc. and Morgan Stanley. Canada's economic growth will outstrip that of the United States in the first half of 2008, according to Bloomberg surveys. Growth in Canada will accelerate to 1.8 percent in the first quarter and to 2 percent in the second quarter, and the United States will slow to 1.1 percent before quickening to 1.8 percent, respectively, according to the median forecasts taken from Jan. 3 to 8.

Radlo acquired undisclosed stakes in companies such as AltaGas and Keyera because of their potential for increasing earnings and dividends. AltaGas has a dividend yield of 8.1 percent, and Keyera's is 8 percent, compared with 2.5 percent for Canada's benchmark Standard & Poor's/TSX Composite Index.

Alberta, whose economy grew 7 percent in 2006, produces about 68 percent of Canada's daily oil output and 77 percent of gas production, according to the Canadian Association of Petroleum Producers.

"In the oil-sands basin, a lot of the companies that are going to have organic growth are some of the pipeline companies that feed in there," Radlo said. "These companies will continue to pay a nice dividend and be good, safe stocks regardless of whether the economy is good or bad."

When Radlo left Fidelity, he managed about $9.8 billion and oversaw funds such as the $2 billion Fidelity Canadian Growth Company Fund. Under Radlo, the fund posted annual gains of 13.4 percent over almost 13 years, compared with an 11.4 percent return for the Standard & Poor's/TSX Composite Index.

Radlo "is a talented stock-picker, he has a strong track record and a loyal following, so his hiring is very significant for CI," said Dan Hallett, an independent mutual fund analyst in Windsor, Ontario.

Radlo, who spent 21 years at Fidelity, said he was targeting annual returns of 10 percent to 12 percent for his Canadian equity and global funds, called Cambridge Canadian Equity Corporate Class and Cambridge Global Equity Corporate Class. Radlo also runs a balanced fund, Cambridge Canadian Asset Allocation Corporate Class.

For his global fund, Radlo said he had bought non-Canadian stocks such as Norway's Telenor ASA, the Nordic region's biggest phone company; and National Bank of Greece, the country's largest lender.

Radlo said he was wary of U.S. banks because of concern over potential write-downs linked to subprime loans. Losses and write-downs at the world's biggest banks and securities firms totaled $97 billion last year, according to data compiled by Bloomberg. Citigroup Inc., JPMorgan Chase & Co. and Merrill Lynch may write down an additional $34 billion in securities linked to the collapse of the subprime-mortgage market, according to a Dec. 26 report by Goldman analyst William Tanona.

Companies such as New York-based GFI Group Inc., which accounts for about 30 percent of trading in coal derivatives, and commodity risk-management services provider FCStone Group Inc. are attractive because they are "on the periphery" of the financial-services industry, Radlo said.

In Canada, Radlo said, he will initially focus on Toronto-Dominion Bank, which is acquiring Commerce Bancorp Inc., of Cherry Hill. He said he would aim to diversify by adding stocks such as real estate and power-plant owner Brookfield Asset Management Inc., Toronto investment bank GMP Capital Trust, and asset manager Gluskin Sheff & Associates Inc.

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