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Investment Approach
The Fund's Class A Shares seek to generate long term growth by providing investors with exposure to Canadian natural resource companies. The principal business of the companies that we can invest in include: (1) oil and gas exploration, development and production; (2) mineral exploration, development and production; (3) forestry-related industries; (4) alternative energy development and production; and (5) resource-related services such as service and infrastructure providers for natural resource companies.
Connor, Clark & Lunn Investment Management Ltd. ("CC&L" or the “Investment Manager”) will utilize an active fundamentals based approach which involves disciplined monitoring of the sector. Before an initial investment is made, a management interview is conducted to determine the important future drivers for shareholder value creation. In addition to the issuer’s strategic corporate plan, the strength and weakness of the issuer’s management, board and technical teams are assessed. The willingness of the management team to take different levels of risk to achieve their long-term goals and the ability of the issuer to meet its stated goals and key financial metrics are also examined. If an issuer’s securities are added to the portfolio, regular visits are made with the management team to monitor whether it is meeting the milestones set for the issuer at the initiating meeting. Target prices are set for the stocks based on the expectation for growth and value creation potential and are used to assess relative opportunity amongst the universe of investments. In support of the bottom-up stock selection process, an understanding of the macro environment is developed using a wide range of industry contacts.
The Investment Manager uses many of the traditional industry efficiency metrics in its analysis of company-specific risk. For example, when assessing the quality of assets, the Investment Manager will evaluate the level of production risk by examining how long wells have been in production, how much of the overall production is made up of wells with less than two years of production, and the geographic concentration of the wells. Exploration and development costs are also considered by the Investment Manager to be important measures of efficiency of the management team as are netbacks (revenue less production costs), operating costs and selling, general and administration expenses on a per Share basis.
When assessing a business there are a number of key characteristics that the Investment Manager looks for. These include:
strong and experienced management team, demonstrated ability to create shareholder value, well-defined strategic plan with visibility, quality assets that provide organic growth potential, strong board and corporate governance, strong balance sheet and funding ability, diversified risk exposures, and defined financial metric goals.
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