Dr. Richard EvansA Comment -- General Comments From an ExpertA CommentaryN/AOct 11, 2016

Actually makes a lot of sense. CVE is one of those companies that has a very good operational history in terms of the oil sands. 

He hasn't had a chance this morning to delve into the valuation. But of the heels of the MEG acquisition, the synergies and contiguous lands, and the long-life assets, they're going to make this work. Thinks the market likes it, based on CVE stock being barely off today.

CVE is making so much cash these days, both on the refining side and on the oil side, it won't be a big deal for them to swallow.

This is a very narrow market. We've experienced a stealthy correction since the peak in mid-May. If you look at the US small-cap index, or the S&P 500 equal weight index, the average stock in the S&P is down a huge amount. 

People don't realize this because they're looking at the market-cap-weighted index, and it's just chugging along. It's being held up by AAPL, META, and GOOG. All the big mega-cap tech names. But the average stock this year is not having a good time of it.

No. He does have Canadian exposure. His team are value investors and stock pickers. So they go where their clients' capital is going to be treated best. The US was, and still is, the biggest market in the world. And it's a varied market. It offers a lot of different businesses and industries. Lots of choice.

Canada is a bit more constrained. You have energy, mining, financials, banks. And then a hodgepodge of some other businesses. Not that there aren't some interesting businesses to be held in Canada, but not in the vast number that there are in the US.

Valuations of all banks are extended. Potential credit cycle looming in next 12-18 months, and banks will typically take it on the chin. Not getting the 5-7% yields of yesteryear, so you're not being paid to hold something open to a credit event. 

Returns on AI investments are so high because chips can command any price they ask, and the build is both huge and inflationary. The effects of Trump's tariff policies. War in Iran. Ukraine destroying Russia's refineries. All these things have led to higher inflationary prices for the consumer.

It's been quite disruptive, and consumer confidence has dropped along with that. While that's depressing the economy, AI is pushing it forward. We're probably at a bit of a peak for inflation. It appears that the Americans have been able to open up the Strait of Hormuz for everything except Iranian oil. So the oil situation is improving.

A lot of damage has been done to oil infrastructure around the world, which needs to be rebuilt. Oil will come down, but it's not going back down to where it was.

Yes. We'll talk about a stock later that's put AI into its processes and it's recovered its investment. It's the same thing when we invented the car, the buggy people were all scared. It's that sort of situation. It's a massive change to how the world's going to work, and people are scared.

Fear in the markets has largely been digested in this pullback we've seen. All of a sudden today, the chip stocks are rallying again. Still a lot of moving parts to keep an eye on in the world, just like driving on the highway. But the long-term outlook is very good.

His firm assesses each one individually. They tend not to play unless they think it's a really good idea. Anthropic, for example, they'll let mature in the market before they consider getting involved.

Profitability collapsed once government allowed smaller players in to use their networks. RCI.B, with its sports business, is probably the one that will be successful. BCE and Telus both cut dividends -- companies have lost credibility in the market. Decent investments to pick up the dividend.

Starlink might annihilate them all. Lots of changes in technology.

Most people's definition includes utilities, pipelines, and airports. They can describe what type of businesses involve infrastructure, but not overarchingly what it is.

His firm's definition of infrastructure is really simple. It provides an essential service, in a supply-constrained manner, to a large portion of the population. It's the businesses that allow other businesses to operate.

Here's an example. It would be a challenge to name a business or household that doesn't use electricity, water, waste disposal services, or high-speed internet. Even stock exchanges. Infrastructure provides the services that allow the global economy to function.

Because it provides such an essential service, the great thing about infrastructure is that the demand is relatively inelastic. Whether GDP growth is +2 or +4, or -2 or -4, we're all going to continue to use roughly the same amount of water, electricity, and so on. (In fact, if GDP growth is negative, we actually might spend more time on the internet.)

You want to be a long-term investor, but you want to be very strategic when you enter. These businesses tend to have long-term, contractual cashflows. The outlook is very predictable. Pick your entry point very tactically so you can maximize the compounding of total returns.

If infrastructure stocks sell off because interest rates and oil prices are going up, that's the time to pounce.

His definition of a super-cycle is when you have multi-trillions of dollars of investment happening over multiple decades. His team identified 5 global themes that will drive performance and cashflow in a portfolio.

Digital infrastructure and financial networks -- captures AI, plus innovation in financial networks. Cell towers, data centres, stock exchanges, payment networks. 

Power generation and power demand -- AI, electrification, battery storage.

Energy transition -- mainly about the planet needing more energy from all sources.

Transportation, logistics, and trade -- US trade policy has forced companies to relocate plants away from China, which increases demand for infrastructure to support that manufacturing. Ports, roads, bridges, power plants, logistics real estate.

Infrastructure renewal -- bridges, ports, and airports need to be refreshed and upgraded. US infrastructure earned an average grade of C+ this year, with some assets earning a D. That super-cycle alone is $94T between now and 2050.

None today.

With Starlink, you'd have to buy a special phone that allows you to connect to the satellite network. Actively competing in US, with plans to come into Canada.

Challenge is that high-speed fibre and the land-based cell tower network will always be superior to satellite due to line-of-sight and distance issues. The lag differential is about 10:1. Cost of launching satellites is pretty expensive compared to building cell towers.

It's nice to have competition, but this won't be robust competition. Elon Musk himself says satellites will never be able to replace the terrestrial tower network.