Author Archives: CFAMNEB

Rey Baribault – “Energy – Where Are We Headed?” Event Recap

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By Tung Nguyen, a student at the University of Saint Thomas and Level II candidate.

On Tuesday, September 12th, 2017, CFAMN hosted Rey Baribault. Mr. Baribault is the co-founder and Vice President / Engineering of North Plains Energy, LLC, a Denver-based exploration and production operator. He has served in several executive roles in oil and natural gas companies in different regions including Fort Worth Basin, Denver Basin, Bakken Basins, etc. He was elected to the Matador Resources Company (NYSE: MTDR) Board of Directors in June 2014 and currently serves as the chair of the Board’s Operations and Engineering Committee.

Five main topics

In his talk “Energy – Where Are We Headed?” Mr. Baribault shared his perspective regarding the current and future of US and global energy. The five topics he wanted investors to focus on are highlighted below:

  • US Energy independence
  • Is shale still a good investment?
  • Permian Basin’s dominance
  • Canada, Mexico and Unconventional Frontiers
  • OPEC Decision

US Energy Independence

Mr. Baribault spoke highly of US energy’s current stage. Ten years ago, it was unthinkable to believe that US energy could be independent in terms of demand and prices. After the end of export ban in late 2015 however, the US has become one of the biggest players producing 9 million barrels of oil per day, exporting 1.1 million barrels daily. The US has emerged as net gas exporter as well, reducing its dependence on Canada and Mexico imports.

Is shale still a good investment?

The answer depends on the level of involvement. Mr. Baribault believes that for operation business like himself, shale is still a good investment, but fiscal prudence, due diligence, and capital discipline are the keys to success. Mr. Baribault said his company was able outperform its peers during 2012, when oil price was $120/bbl by strictly following these criteria. He forecasted that the $45-$55 oil price window will not likely change substantially in the next few years.

Permian Basin’s dominance

The Permian Basin (West TX and South NM) has been the highlight for US energy over the past few years. This basin accounts for nearly half of the US’s oil production. 40% of E&P M&A activities occurred in the Permian Basin. Mr. Baribault expects that the Permian Basin will be around for a long time (approximately 30 to 40 years). E&P capex is expected to increase by 400% over the next five years. However, in the end, production is still dependent on price.

Canada, Mexico and Unconventional Frontiers

Canadian heavy oil sands have the potential to be second to US shale as the biggest contributor to global supply growth. Oil sands’ weakness is high operating cost, but efficiency has been improving lately. Mexico is in a transition period: The government has been deregulating its E&P marketing, but it will take time. Mr. Baribault expects US exports to Mexico to continue to grow. Regarding unconventional production, Mr. Baribault mentioned Enhanced Oil Recovery (EOR), which is currently a high-cost technique, but he expects it to become a regular part in the future. He also noted Mexico, Argentina, Colombia as some countries that might see strong shale development 5 to 10 years from now.

OPEC Decision in 2018

Rey Baribault expects OPEC to continue to cut production. However, if US shale operators continue to struggle to break even, then OPEC should be less concerned. He suggested investors keep an eye out on Saudi and Kuwaiti plans to tap natural gas reserves to fuel domestic energy consumption displacing oil-fired burn. These plans will lower demand for oil consumption and increase supply for exports to the global market.

Conclusion

Mr. Baribault does not expect oil prices to change significantly from the $45-$55 range. The Permian Basin will continue to play a big role in US energy production in the next few decades. Investors should keep an eye out for Canada, Mexico and other emerging countries as they might see strong shale development in the near term.

Distinguished Speaker Series featuring Jason Trennert – Event Recap

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By Brad Lee, CFA Society Minnesota Intern

On Thursday, June 22, 2017 CFAMN hosted Jason Trennert, Managing Partner, Chairman and CEO at Strategas Research Partners. Mr. Trennert is the author of multiple books on investing, and is widely quoted in the press, and is a regular on CNBC and Bloomberg. He shared his perspective on a diverse group of topics including his viewpoint on current economic trends, investing in the Trump era, and the growing discrepancy in the beliefs between the average citizen versus experts in these subjects.

The Base Case

Mr. Trennert is forecasting real GDP growth of 2-2.5% in 2017 and ~3% in 2018. He believes deregulation will focus on energy and financials, and the budget will focus on increases in defense and infrastructure spending. Small business confidence is growing. Therefore, policy changes are believed to help small and mid-sized businesses more than large businesses.

Economic Outlook

His presentation featured a segment on the greatest story never told. This was the serendipity of the election results in November 2016, coinciding with a turn of positive  S&P 500 trailing 12-month Y/Y earnings growth in 4Q’16. This adjustment of increased earnings came after 6 months of negative earnings, which ultimately stimulated the current rally. Mr. Trennert concluded this is perhaps the most unloved bull market of all time since its inception in 2009. The era of low interest rates also may finally be ending. Currently he is bullish on the economy and the market in the foreseeable future.

Four 4 Main Items to Trump Agenda

There were four key points in Mr. Trennert’s presentation he believes investors should focus on, which are highlighted below:

  1. Increasing velocity of money
  2. More drilling
  3. Increased spending of infrastructure and defense
  4. Tax reform

The last seven years has been a period of easy money but tight regulation. An unforeseen issue with this has been marginal companies staying in business, especially in the retail and energy space. Mr. Trennert foresees looser restrictions on stress tests and increased velocity of money going forward with the new administration. As for the current priority of deregulation and the U.S. exporting more in energy, this will result in more drilling by companies and will benefit companies who are prepared for the shift. However, Mr. Trennert is actually more bearish with lighter controls in the industry. He also specified only three of the NATO members (U.S., the U.K., and Estonia) are spending the expected 2% of their GDP on defense spending. Thus, he is bullish on defense stocks and believes this is a growth industry even in an era of populism and heighted concerns about national security. As for tax reform, he believes there are four major goals for the Trump Administration. It includes tax simplification, flattening the effective corporate rate, shift to a territorial tax system, and encouragement of CapEx spending.

Revenge on the Nerds

Mr. Trennert stated his research in 2016 had been “…actually being in the research” or discussing with others to find their perspectives. Thus, he concluded there is a growing trend of how “average ordinary” people are starting to question experts on investments and the economy. Some of these include the open borders, the Affordable Care Act, low interest rates on savings, and over-diversification of investment accounts.

Conclusion

From an investment perspective, Mr. Trennert is overweight financials, industrials, and technology. He believes small to mid-cap financials have more to gain from deregulation than large caps, and likes technology stocks that as he simple stated, “…do not have triple pricing multiple earnings valuation…” He also believes it’s a good bet there will be a tax cut on repatriated profits and any future financial repression favors passive investing, although active investing will always play a major role in the investing world.

 

2016 Financial Compensation Survey Results

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We’re pleased to release the findings from our fourth annual Financial Compensation Survey for Minnesota, North Dakota and South Dakota.

Click the image at right to download, at no charge, this white paper summarizing high-level survey findings in an easy-to-read format. In return for the white paper or for deeper data requests, please complete the contact form below. Your feedback is welcome and appreciated.

Again this year, we expanded the survey to other CFA Societies throughout the Midwest and beyond. Watch for a consolidated report in the coming weeks summarizing results for the cities of Chicago, Indianapolis, Kansas City and Saint Louis, plus the states of Florida, Iowa, Michigan, Nebraska, North Carolina, Ohio and Wisconsin.

Thanks for your interest!

P.S. click below for the consolidated white paper referenced above.

 

 

 

The Impact of Equity Engagement

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By Timothy Smith, Director of ESG Shareowner Engagement at Walden Asset Management, a division of Boston Trust & Investment Management Company

One of the approaches used by investors to engage companies in which they own shares has been a combination of dialogue and shareholder resolutions. For over 45 years investors have utilized their right as shareowners to file resolutions for a discussion and a vote at a  company’s  annual stockholder meeting . These resolutions have included a wide range of governance , social and environmental issues. Many of them ask for companies to expand their reporting and disclosure on an issue. Others seek a change in company policies or practices.

Companies respond in very different ways to these “ petitions”. Some are defensive and hostile, others are polite but still reserved, others see this as a positive opportunity for dialogue with an investor and seek to find a win/win agreement.

Increasingly companies have responded with constructive discussions with investors.  Often these resolutions are the foundation for discussion and are  withdrawn when an agreement is reached . On other occasions the resolution is included in the proxy and voted on at the annual stockholder meeting.

One of the often asked questions is whether engagements and resolutions have any positive impact or if they are just an example of a Don Quixote shareholder tilting at corporate windmills .

I have had the opportunity to be part of such shareholder engagements for over 45 years so can point to numerous examples of this “ exercise” bearing no fruit while others are very effective and result in long term changes by companies. We believe the record shows that such prodding/persuasion by investors has resulted in significant and specific changes by many companies on a wide range of issues.

The “ impact “ of such engagement is chronicled in a 2014 report by the Croatan Institute in concert with a number of investors including Walden . For those interested in this strategy this report is a very useful resource.

These other materials from Walden help make the point about the effective impact of shareholder engagement.

Hear more from Timothy at our upcoming ESG Impact Investing track on August 23. The track is part of CFA Society Minnesota’s annual investor conference, investMNt. Learn more here & register today!

 

Since 1975, Walden Asset Management has specialized in managing portfolios for institutional and individual clients with a dual investment mandate: competitive financial returns and positive social and environmental impact. Walden is an industry leader in integrating ESG analysis into investment decision-making and company engagement to strengthen ESG performance, transparency and accountability. Walden is a division of Boston Trust & Investment Management Company, a PRI signatory.

Facing an Ethical Dilemma?

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The CFA Society has long been an advocate for strong ethics in the Investment Profession. The Code of Ethics and Standard of Professional Conduct are an integral part of the testing process, and underscores the importance to the Society of practicing the craft while adhering to those principles. As stated in the CFA Society’s Mission & Vision Statement:

High ethical principles and professional standards are essential to positive outcomes; rules and regulations, while necessary, are not sufficient by themselves.

We think that the CFA Society’s commitment to strong ethics is part of what sets charterholders apart from other professionals in the Investment Profession. We think this is particularly important in light of highly publicized ethical failures and an increasingly skeptical attitude toward the Investment Profession from the public. We would like to reinforce this message by starting a dialogue on FreezingAssets to help promote ethical decision making. The CFA designation comes with an obligation to do more than determine what is legal. We must go beyond the bare minimum of what is required. We want to understand what is right. And to understand what is right, we need to engage in dialogue. We would like to solicit questions and concerns from members, and then tap into our member base and professional experts to explore the ethical issues involved.

So, here are the ground rules.

1) Questions should be submitted anonymously. We don’t want anyone to worry about experiencing negative career impact from engaging in dialogue. So, no real names, no company names. Just situations.

2) Real situations are better. No trying to trick the panel with things like “If God is all powerful, can he make a planet so big that he himself can’t lift?”

3) Freezing Assets is not providing legal advice. So don’t ask for it.

There is a form on Freezingassets.org for submitting questions, situations, or concerns – access the form here. As with much of what we do, this is an experiment. Maybe everybody already knows everything. But we kind of hope there are a few folks out there who are able to challenge us all to think more deeply about what we do. We think that’s really what the Code and Standards are all about.

When submitting an inquiry, you agree to the following. Neither the Blog nor the Society is giving legal advice. If you think you need to consult a lawyer or compliance professional you should do so. The Society disclaims any liability for any advice or commentary on this website. The Blog respects the privacy of its participants.