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Canada still too heavily weighted to oil sector, says Stableview's Colin Fisher

ColinFisher Colin Fisher, portfolio manager and president at Stableview Asset Management, made the case on BNN yesterday that Canada’s economy is not diversified enough to weather the storms of global uncertainty driven by extreme weather events like China’s stock market crash, not to mention nuclear weapons testing on the Korean peninsula, and a flare-up between Saudi Arabia and Iran.
The problem, as Fisher points out, is the deep integration of the resource sector into every aspect of the Canadian economy, paired with the borderline delusional hope that temporary troubles remain temporary, and that we’ll all return to business as usual when oil comes back.
“Our banks lend to these large companies, we have a lot of jobs that are in this sector,” says Fisher. “Part of the general velocity and the money flow in Canada is through the oil and resources sector in Canada.”
Fisher is among many tech sector watchers who have for years been warning of the dangers of a national economy putting most of its eggs in a single basket.
It is a truth universally acknowledged that people are quick to take credit when the economy’s doing well, and much faster to blame “global uncertainty” when things go badly.
Everyone was happy when oil coasted above $100. Not so much anymore, now that it’s headed towards $30, its lowest level since 2003.
“I don’t think we’re going back to $100 oil,” says Fisher. “And because of that, I think we’ll have a generally lower Canadian currency. So I think that we will have a general competitive advantage for an ongoing period of time. So if you’re looking for a company that has some sort of diversified revenue stream that’s global, or even if it’s just down in the States, then you’re going to see that that company will generally have a competitive advantage for an ongoing period of time.”
External crises are easy to blame in an economic downturn. But it’s not as though world peace breaks out each time oil rises in value.
And as Fisher points out, not everyone is a loser when the price of oil, along with Canada’s dollar, tanks.
“For Canadian manufacturing, this is a good thing. We’ve always had this problem of a slightly two-speed economy. If the oil patch does very, very well, Canada’s loony is essentially a petro-dollar, always has been for quite some many years,” says Fisher. “And so, as commodities do well, then the Canadian currency does quite well. The problem is, when you have a strong dollar, then your exports generally take a hit because you become less competitive internationally.”
For Canadian companies that have been developing software-as-a-service business models, selling cloud-based services to a client base mostly in the U.S., the worse the Canadian dollar performs, the higher the profit margin here in Canada.
“We generally call ourselves knowledge-based investors,” says Fisher. “So we look primarily outside of the oil and gas and resource sectors. So we’re looking for companies that will have some sort of ongoing demographic or technological change in an industry that will drive them forward on an ongoing basis. One of the benefits of the Canadian dollar weakening is that many of these companies, if they’re exporting their services, they actually do very well. They become more competitive, and in fact, their margins increase. Many of the companies that we have that export, that have Canadian costs and get their revenues in a foreign currency, if the Canadian dollar drops relative to that currency, then their margins actually expand. Their costs go down, and their revenues go up. Some people call that FX impact. But that can be an ongoing benefit for a lot of these companies.”
Indeed, there has never been a better moment than right now to be running a SaaS based business in Canada, particularly for those companies that were fortunate enough to catch the first wave of tech-centric venture capital post-2008, such as Hootsuite and Shopify and Lightspeed.

“One of the benefits of the Canadian dollar weakening is that many of these companies, if they’re exporting their services, they actually do very well.” – Stableview’s Colin Fisher

BNN host Catherine Murray attempts to stir a debate, telling Fisher of a recent on-air conversation with Kevin O’Leary, during which the man who plays a venture capitalist on television talked seriously about the negative effects of a “brain drain” on Canada’s economy.
Remember “brain drain”? It’s a brand-new idea, coined during the 1950s, which O’Leary has now latched on to in order to explain Canada’s underdevelopment in the absence of oil revenue.
Fisher replies diplomatically, “I don’t know if I want to get in a scrap on air with Kevin O’Leary. He’s got a lot more air time than I do. We invest quite heavily in the tech space. So what we’ve seen is, if you are a younger person moving into the tech space, you may be more willing to go down to the Valley and pay much higher life expenses and live in a frat house environment with a bunch of your buddies and whatnot. But if you want to actually have a life, if you want to have a wife or children, or a husband and children, and you actually want to have a good standard of living, what we’re seeing is actually some of the older, more mature developers and technologists come back to Canada, because they can actually have a more even-balanced life.”
This jibes with an editorial published yesterday in the Globe and Mail by Lightspeed CEO Dax Dasilva, whose success he sees as a natural consequence of building a business in Canada and keeping it here, along with his peers at Hootsuite and Shopify.
“Canadian founders should feel that a long, bright future holding on to their companies is a viable proposition,” writes Dasilva.
Speaking of brain drain, however, Canada punches well above its weight, and presents an attractive alternative to the funny money atmosphere of Silicon Valley.
“Three of the world’s top 50 engineering schools are in Canada, with the University of Toronto, the University of Waterloo and the University of Ottawa all making the list,” writes Dasilva. “The problem? Other people are noticing this talent, too, and recruiting harder than we are: An estimated 350,000 Canadians now live in the the San Francisco Bay area. For those who stay to work at Canadian tech companies, the talent reputation makes buying companies primarily to acquire talent, also known as aqui-hires, an attractive bet for companies around the globe.”
If anything, Canada has a case of brain drain in reverse, with Canadian companies and talent attracting American investment on their own terms, while American tech giants like Facebook, Google, Amazon and Salesforce set up shop in Canadian hubs like Waterloo, Toronto, Vancouver and Montreal.
Fisher’s observations bear this out, with the added note that what makes Canada attractive is its livability. People like Tobi Lütke, Dax Dasilva and Ryan Holmes, with his “maple syrup mafia”, have made a point of building and keeping their business in Canada for the long term.
We’re hearing now more stories like those of returning entrepreneurs like LP Maurice, who worked in San Francisco for several years before returning to Montreal to start Busbud.
“One of the problems down in the Valley is the cost of real estate has gone through the roof, and that adjusts all costs of living,” says Fisher sitting in a studio in downtown Toronto, one of the crazier real estate markets in Canada, but nonetheless a bargain compared with San Francisco.
“So you may get a higher bump in pay topline, but your bottom line may not actually be as good because you’re paying so many more expenses,” he says. “We think that you’re seeing a more mature labour force in technology, which we’ve seen in Toronto quite a bit. Toronto has a very deep expertise.”
Watch the entire interview here.

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