EdgePoint Go West Portfolio
A concentrated portfolio that sought to provide capital appreciation through investments in Western Canada, primarily in energy companies. EdgePoint Go West Portfolio was closed on June 19, 2024.
The sun sets on the West
EdgePoint Go West Portfolio was launched with a simple thesis – inviting our clients to join us investing in a potentially generational opportunity in Canadian energy companies. We saw a decade of underinvestment limiting oil & gas supply and disagreed with the overwhelming pessimism towards future oil demand. We believed Canadian energy companies were well positioned to capitalize on this view, with high-quality resources overlooked by most investors.
On May 24, 2024, we announced that we were closing the Portfolio because this view largely played out and we’re pleased with the outcome. Original investors at the Portfolio’s launch that entrusted us with their capital now have an investment worth approximately 4x their initial amount and outperformed the benchmark:
EdgePoint Go West Portfolio, Series W: 300.52%
S&P/TSX Capped Energy Index: 168.37%*
Nov. 22, 2019 to May 21, 2024, the date of calculation prior to the announcement of the Portfolio closing. Total cumulative return, gross of fees, in C$.
It’s been our dream to identify and invest in opportunistic ideas like Go West, but we have always said that it wouldn’t be a permanent portfolio. Since its launch, the Canadian energy industry has evolved a great deal. Balance sheets were repaired, consolidation occurred and management teams recognized the importance of capital allocation and shareholder returns. There’s still work to be done, but the heavy lifting seems to have been completed. The investor apathy that once caused top- and bottom-decile companies to trade at the same valuation has waned and we now see clear differentiation between the best and the worst. These are all signs that our original thesis has largely played out and we’re going to lock in the returns investors have earned by closing the Portfolio.
Go West was the first thematic portfolio for EdgePoint, and we hope it won’t be our last. We thank you for the trust that you gave us and will continue to work hard every day to be worthy of it.
Source: Bloomberg LP. The S&P/TSX Capped Energy Index, a 25% capped-weight index of GICS-classified energy companies that are part of the S&P/TSX Composite Index. The S&P/TSX Composite Index is a market capitalization-weighted index comprising the largest and most widely held stocks traded on the Toronto Stock Exchange. The EdgePoint Go West Portfolio does not have an official benchmark. The index was chosen for comparison because it is representative of the Canadian energy exposure consistent with the Portfolio’s mandate. The indexes are not investible. We manage our Portfolios independently of the indexes we use as long-term performance comparisons. Differences including security holdings may impact comparability and could result in periods when the EdgePoint Go West Portfolio performance differs materially from the S&P/TSX Capped Energy Index.
The opportunity
We launched Go West on November 22, 2019, against the backdrop of Canadian oil & gas being one of the most out-of-favour industries in the world.
Over our many years of investing, such negative sentiment starts becoming the underpinnings for longer-term value creation if the investments can overcome the reasons for falling out of favour in the first place.
We launched this Portfolio because it was an asset class where we saw an investment opportunity for our money but have no intention of running an energy portfolio indefinitely.
We also believed there was a positive ESG story to the Canadian energy industry that, unfortunately, is only becoming apparent today.
Our commitment to you is that when we no longer see this as an opportunity, we will take our capital and return yours as well at the same time.
We’re hopeful that it will be after substantial capital returns.
Below you'll find our thoughts over the last few years as this space continues to evolve.
No more room on the ark
On October 1, 2021, at a price of $15.72 per unit, we capped the Go West Portfolio to purchases from new investors. When we launched the Fund a year and a half earlier at $10 per unit, we asked our investment partners to follow us into the abyss and invest along side us in what we believed was an undervalued and very unloved sector. We didn’t take a management fee and we only get paid after an investor takes their money back, with a profit of course.
It’s a gratifying feeling to invest side-by-side with investors in such a unique one-off and non-perpetual opportunity like this Go West Portfolio. But with the Portfolio’s investment results up 57% on October 1, 2021, new investors would be coming in much higher than where we invested our own money.i There’s a point where we’re no longer investing side-by-side and destined for the same investment experience. We think we’ve crossed that point on October 1, 2021 at $15.72 per unit. That’s why we capped the Fund to new investors. Existing unitholders of the Fund can continue to add at their leisure (let's call that the fringe benefits of following us into the abyss). Our success will never be determined by assets under management.
We promised this would never be a permanent fund and that our money will stay invested until we close the Fund and give everyone’s money back. This now becomes our challenge to determine that time, that valuation, that moment before everything starts falling apart. This is never easy and we don't intend (or believe) we're skilled enough to time the top. With multiples this low, combined with the discipline and hurdles around growing production we’re still happily long this beautiful industry we owe so much to, but who we must soon transition from.
EdgePoint Go West Portfolio, Series W
Annualized total return, net of fees, performance in C$ as at January 31, 2024. YTD: 4.59%; 1-year: 12.99%; 3-year: 54.03% since inception (Nov. 22, 2019 to September 30, 2023): 32.91%.
i As at September 30, 2021. The Portfolio’s closing price was $15.72 compared to the initial price of $10.00 at its November 22, 2019 inception. We chose to compare against the inception date because a significant number of units were purchased by internal EdgePoint partners on this date.