These Canadian oil and gas stocks are luring the smart money

·3 min read
The funds included in the analysis purchased $1.105 billion worth of Canadian mid-cap oil and gas stocks in the first three months of 2022, up from $876 million in the prior quarter.
The funds included in the analysis purchased $1.105 billion worth of Canadian mid-cap oil and gas stocks in the first three months of 2022, up from $876 million in the prior quarter.

Institutional investors snapped up more than $1 billion worth of mid-cap Canadian oil and gas stocks as commodity prices hit multi-year highs in the first quarter of 2022. That’s according to analysts at Raymond James who combed through the financial filings of about 6,200 funds.

“Ultimately, we want to know what these funds are doing today, what names they are buying, and the breadth/size they are coming in at,” Raymond James analyst Jeremy McCrea wrote in a note to clients on Thursday.

McCrea's report focused on institutional investors who owned at least one TSX-listed exploration and production (E&P) stock since the end of 2018. The findings show strong buying among “generalist” investment funds with otherwise minimal energy holdings, as well as growing interest from south of the border.

The analysis comes on the heels of triple-digit first-quarter returns from top-performing names like Bonterra Energy (BNE.TO), Obsidian Energy (OBE.TO), and Surge Energy (SGY.TO), all of which have a market capitalization of less than $1 billion.

Meanwhile, the iShares S&P/TSX Capped Energy ETF (XEG.TO), a basket nearly half dominated by Canadian large-caps Suncor Energy (SU.TO)(SU) and Canadian Natural Resources (CNQ.TO)(CNQ), climbed a less impressive 31.4 per cent.

Overall, the funds included in the analysis purchased $1.105 billion worth of Canadian mid-cap energy stocks in the first three months of 2022, up from $876 million in the prior quarter.

"Generalist" funds that hold less than five per cent of assets under management in Canadian energy purchased $666 million worth of mid-cap energy shares in Q1, according to Raymond James. Nearly 70 per cent of all Canadian mid-cap names were purchased by U.S. buyers during that period, the report said.

What mid-cap energy stocks are energy-weighted funds buying?

Raymond James defines “energy-weighted” as funds having more than 20 per cent of assets under management exposed to oil and gas. Out of the 326 funds in this category, 58 per cent held shares of Tourmaline Oil (TOU.TO) in the first quarter, followed by ARC Resources Ltd. (ARX.TO) (46 per cent), and Parex Resources (PXT.TO) at 26 per cent.

What are the funds that picked the Q1 winners buying now?

Bonterra, Obsidian, Surge, Cardinal Energy (CJ.TO), and Crew Energy (CR.TO) were the top mid-cap performers in Q1, according to Raymond James.

“We've gone back to see what 'actively managed' funds had the foresight to buy these E&P names before their run (i.e., bought these names in just the prior quarter — 4Q21) and what these funds are out buying today,” McCrea wrote.

According to the report, 97 of the roughly 6,200 funds bought shares of one of the top five performers in the fourth quarter. Among that group, 29 per cent added shares of Parex in the first quarter, followed by Paramount Resources (POU.TO) at 28 per cent, and Tourmaline at 24 per cent.

Which Canadian mid-cap energy stocks saw the most funds start new positions?

Rubellite Energy (RBY.TO) saw a 300 per cent increase in new funds in the first quarter, followed by Obsidian at 104 per cent, and Pinecliff Energy (PNE.TO) at 92 per cent.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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