Crude oil prices have been so dominant in the Canadian market over the past few years, that merely avoiding the worst of the crash would be sufficient for investors to beat most of the market.
Mackenzie Financial's Canadian growth team was able to do just that.
"You could see that supply constraints were coming off, and it was relentless," said David Arpin, a portfolio manager at Mackenzie. That call propelled a pair of funds that Mr. Arpin helps manage to the top of the industry in terms of returns.
U.S. fund-research firm Lipper Inc., a unit of Thomson Reuters, recently handed out awards to Canadian mutual funds and exchange-traded funds for superior returns in a broad set of categories over three-, five- and 10-year periods.
Among the 70-plus funds recognized by the Lipper Fund Awards was Mackenzie's Canadian Growth Balanced Fund, which beat all its peers in returns over the past three years, at 12-per-cent annualized, and as well in the five-year category, with average annual returns of 11 per cent.
Additionally, the Mackenzie Canadian Growth Fund won the Canadian focused equity category by realizing annualized returns of 16 per cent over the past three years.
Mr. Arpin described the investing approach to these funds as driven by bottom-up, fundamental stock picking, but said big top-down macro calls may guide weightings when appropriate. No such market call was more integral to returns than was limiting exposure to the energy correction.
By late 2014, West Texas intermediate had dropped below the $80 (U.S.) for the first time in more than 2 1/2 years. Both Mackenzie funds had close to a full market weighting in energy, but the fund management team saw only further downside in crude.
Production costs in the resurgent U.S. energy sector had plummeted in recent years, and all signs pointed to a large oversupply in the global market, Mr. Arpin said. Additionally, the Canadian dollar was still relatively high, having only recently declined below the 90-cent mark.
So the funds began to exit many of its energy holdings and redeployed the proceeds away from oil and away from Canada in general.
"Our view was that the U.S. was likely to outperform Canada in a falling commodity price environment," Mr. Arpin said.
The funds' Canadian weightings declined to about 55 per cent from about 75 per cent, with most of that going into U.S. equities.
The Mackenzie team is in no hurry to re-establish a large position in energy, despite a consensus outlook that is generally positive for oil prices in the coming years, Mr. Arpin said.
"I regard those [forecasts] with a great deal of caution."
The disruption to the market caused by the shift to clean energy and electric vehicles is one that the market does not yet fully appreciate, Mr. Arpin said.
This week, the International Energy Agency said that transition will be gradual and oil demand will continue to grow for at least the next 25 years.
But as the cost of producing clean technology such as electric vehicles continues to drop, the shift could quickly gain momentum, Mr. Arpin said.
"Some time early next decade, it could be cheaper to get an unsubsidized electric vehicle than an internal combustion vehicle," he said. Soon after, the industry could see a "massive switch-over."
So, neither the supply side nor the demand side provides enough reason to be bullish on oil, he said.
"When you have a flattening off of demand growth in a market that has the ability to supply too much oil, it should be pretty tough for oil prices and oil producers."