Eresman out at Encana – what now?
Plus: AIMCo's Leo de Bever shares his view of what lies ahead in 2013, and what investors should do to prepare for it
When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at firstname.lastname@example.org
by Max Fawcett
The big news last week, of course, was the surprise resignation and retirement by Encana CEO Randy Eresman. His interim replacement, Clayton Woitas, has already opened up to the press on why the decision was taken. “Randy had expressed to a number of board members his fatigue in dealing with the public marketplace,” Woitas told the Calgary Herald. “I believe there was recognition by the board that he’d been in the battle a long time with many, many successes and it was time.”
Woitas, along with two other directors, will be tasked with finding a permanent replacement for Eresman, and they’ve given themselves just three to six months to do it. When that replacement does arrive, he – or she – could be free to embark upon the kind of strategic shift that Eresman, who was wedded to the decision to turn Encana into a pure-play natural gas company, couldn’t. And as Canaccord’s Phil Skolnick pointed out, he or she could also decide to sell the company outright. Either way, the change should be good news for shareholders.
AIMCo CEO Leo de Bever held court on BNN last night with his outlook, and as always it was an interesting and informative experience. At the macro level he noted that the fiscal austerity that’s still being pursued in most western countries, and particularly in Europe, is damaging the global economy’s chance at a full recovery. Meanwhile, the ongoing game of legislative chicken in Washington – first over the fiscal cliff, and now over the debt ceiling – is damaging the confidence of already skittish investors. “Mark Carney made the point that if corporations mobilized all the cash on their balance sheets, this recession probably would be over a lot faster or growth would be a lot higher than it is,” he said. “I think that’s the fundamental issue – people are all sitting back and holding onto their cash, and as a result investment is too low.”
In terms of his near and medium-term strategy, de Bever still thinks stocks are the best house in a bad neighbourhood. “If I had to look out five to 10 years, I’d much rather be in stocks than in bonds, even though the return for stocks is only going to be average to less than average. I think the outlook for bonds is pretty clear: it’s going to be terrible or really terrible.” He’s looking at yield-bearing substitutes that aren’t correlated with bond markets, like infrastructure projects and private debt, but has found it difficult to deter clients from continuing to chase the increasingly tiny returns available in the bond market. “We like to keep our clients away from bonds as much as possible, but because bonds have done relatively well over the last 20 years a lot of them still believe that that’s possible in the future,” he said. “We don’t think that is.”
And while de Bever and his team are some of the finest money managers in the country, he doesn’t think retail investors ought to be pursuing active management strategies for their own portfolios. “Our cost may be 10 or 15 basis points to do active management,” he said. “Their cost is 2.5 per cent, and nobody in the long run is going to be smart enough to beat the market by that much unless they’re talking a lot of risk.”