In my recent post describing events at the public meeting of the Standing Committee of the Alberta Heritage Fund I provided an overview of AIMCo’s investments in the United States. In this post, the first of a three part series, I take a deeper look at AIMCo’s U.S. portfolio.The next part addresses AIMCo’s overall portfolio of about $150 billion and part 3 examines the volatility of Heritage Fund income.
Background
As an institutional investor with over $100-million in U.S. registered securities AIMCo is required to file a monthly Form 13F. The filing was utilized by members of the public questioning the wisdom and ethics of certain investments.
This externally required disclosure by the U.S. Securities and Exchange Commission only shows a small proportion of AIMCo’s total assets under management, including Heritage Fund assets.
For starters AIMCo’s Form 13 filing of 14 November 2023 shows holdings as at the end of September 2023. AIMCo’s American holdings include securities of 1043 entities, mostly corporations, with a total value of $9.335-billion.Below is an overview of the largest holdings.
| Investee Entity | U.S. $ amount |
| Alphabet
Amazon Apple BCE Bank of Montreal Bank of Nova Scotia Canadian Natural Resource Ltd. Cenovus Enbridge Meta Platforms Microsoft Pembina Pipelines Restaurant Brands Intl (Tims) Royal Bank of Canada Suncor, Inc. TC Energy T-D Bank VISA Nc. United Health Group Inc. EXXON-Mpbil Canadian Pacific Kansas City |
93,580,603
94,791,604 92,784,863 76,451,521 116,042,675 180,809,412 210,363,221 73,296,008 165,057,702 100,860,953 141,055n945 47,881,124 60,511,853 293,267,138 263,613,632 156,811,481 288,275,711 98,811,376 68,738,239 12,404,690
163,714,780 |
| Churchill Capital Corp.VII | 17,293,235 |
| Eli Lilly & Co | 29,427,741 |
| Lear Corp. | 49700165 |
| DoorDash | 13,324,258 |
| EQT Corp.- notes | 56,510,550 |
| General Electric | 2,697,420 |
| JP Morgan Chase | 11,036,022 |
| Franco Nevada Corp. | 58,661,730 |
AIMCo’s recent filing can be found here. The information can be easily copied and pasted into an Excel spreadsheet.
Observations
There is clearly a home bias operating here. Home bias is an investment term which means that the home of the investment manager, AIMCo, which is Edmonton, Alberta, Canada will invest proportionately more in securities where the investee companies operate.
Why would AIMCo’s U.S. investments retain a significant home bias if the purpose of the U.S. portfolio was to gain diversification across equity markets?
The U.S. market is now dominated by the “Magnificent Seven“- Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, In AIMCo’s U.S. equity portfolio, the magnificent 7 accounts for a total of U.S. $575 million or 6.15 per cent of the $9.3-billion portfolio.
| Investee Entity | $ U.S. | Per Cent of Total U.S. Portfolio | ||
| ALPHABET INC | 52,061,895 | 0.56% | ||
| ALPHABET INC | 93,580,603 | 1.00% | ||
| AMAZON COM INC | 94,791,604 | 1.02% | ||
| APPLE INC | 92,784,863 | 0.99% | ||
| META PLATFORMS | 0 | 0.00% | ||
| MICROSOFT CORP | 141,055,945 | 1.51% | ||
| NVIDIA CORPORATION | 76,680,907 | 0.82% | ||
| TESLA INC | 23,287,975 | 0.25% | ||
| 574,243,792 | 6.15% | |||
| Source: https://www.sec.gov/Archives/edgar/data/1463559/000112329223000141/xslForm13F_X02/informationtable.xml | ||||
The above table reveals that the Magnificent 7 account for a disproportionately small percentage of AIMCo’s investments. According to Apollo Global Management’s chief economist the Magnificent 7’s combined market value now equals the total value of all publicly listed stocks in Canada, Japan and Britain. Indeed the market values of Microsoft and Apple individually are worth more than the value of the TSX.
Absent derivative positions, AIMCo has missed out on one of the biggest market run-ups in U.S. stock market history. The table below shows the market capitalization *total shares outstanding times market price for security) for this group including 5-year returns in December 2023. Curiously, AIMCo has no position in META Platforms which is the parent of Facebook.
For comparison with the Canada Pension Plan Investment Board’s U.S. securities portfolio (Form 13F) go here.
Not only has AIMCo not taken larger positions in the major intellectual property firms, it has been a minimal investor in other critical parts of the U.S. economy in which Canada offers few peers. For example, big pharma and health companies like Eli Lilly, Pfizer, United Health, Johnson & Johnson, and Amgen. AIMCo has minimal investments in consumer products’ companies like Kraft-Heinz ($551,696), Procter & Gamble, and Kimberly-Clark Corp.
Another sector in which AIMCo has modest positions is in U.S. financial services. For example, AIMCo, on behalf of their clients owns 76,100 shares in JP Morgan Chase or U.S.
$11.3 million. JP Morgan’s market capitalization is over twice that of RBC and yet in the U.S. market AIMCo owns nearly 30 times the value in RBC shares. While U.S. banks have had their troubles (and so have the Canadian banks).and will likely face another crisis, the Big Four U.S. banks (JP Morgan, Wells Fargo, Bank of America, and Citigroup) are considered too big to fail, much like their Canadian counterparts.Total investments in the Big Four U.S. banks were a paltry U.S. $20.7-million.
| Company | Market Cap U.S. $ billions | 5 Year Performance |
| Apple | $2,800 | 250% |
| Microsoft | $2,600 | 224% |
| Alphabet | $1,600 | 141% |
| Amazon | $1,400 | 63% |
| Nvidia | $1,100 | 783% |
| Meta | $811 | 118% |
| Tesla | $690 | 829% |
| $11,001 | ||
| Source: Visual Capitalist | ||
| https://www.visualcapitalist.com/magnificent-seven-stocks/ | ||
Absent any derivative positions in the Magnificent Seven, AIMCo’s U.S. market returns would have significantly under performed competitors with market weight positions. If AIMCo had simply bought funds indexed to the U.S. market, its performance would have been significantly better.
Home Bias
The lengthy table below reveals that Canadian based entities constitute over 36 per cent of the U.S. securities holdings with a total value of approximately U.S. $3.36-billion.
| Investee Entity | $ U.S. | Per Cent of Total U.S. Portfolio |
| AGNICO EAGLE MINES LTD | 89,350,200 | 0.96% |
| ALGONQUIN PWR UTILS CORP | 16,342,200 | 0.18% |
| ALGONQUIN PWR UTILS CORP | 20,510,500 | 0.22% |
| BANK MONTREAL | 116,042,675 | 1.24% |
| BANK NOVA SCOTIA | 180,809,412 | 1.94% |
| BARRICK GOLD CORP | 44,221,920 | 0.47% |
| BAUSCH PLUS LOMB CORP | 22,912,891 | 0.25% |
| BAUSCH HEALTH COS INC | 2,114,083 | 0.02% |
| BCE | 76,451,521 | 0.82% |
| BLACKBERRY LTD | 2,859,733 | 0.03% |
| BROOKFIELD CORP | 116,084,803 | 1.24% |
| BROOKFIELD ASSET MANAGMT LTD | 39,803,860 | 0.43% |
| B2GOLD CORP | 5,758,558 | 0.06% |
| BLACKBERRY LTD | 2,859,733 | 0.03% |
| CAE INC | 7,615,560 | 0.08% |
| CANADIAN IMPERIAL BK COMM | 36,805,705 | 0.39% |
| CANADIAN NATL RY CO | 161,573,252 | 1.73% |
| CANADIAN NAT RES LTD | 210,363,221 | 2.25% |
| CANADIAN PACIFIC KANSAS CITY | 163,714,780 | 1.75% |
| CELESTICA INC | 5,656,627 | 0.06% |
| CENOVUS ENERGY INC | 73,296,008 | 0.79% |
| CENTERRA GOLD INC | 1,490,562 | 0.02% |
| CRESCENT PT ENERGY CORP | 4,130,055 | 0.04% |
| DESCARTES SYS GROUP INC | 9,348,666 | 0.10% |
| ENBRIDGE INC | 165,057,702 | 1.77% |
| GILDAN ACTIVEWEAR INC | 25,995,728 | 0.28% |
| IMPERIAL OIL LTD | 23,769,588 | 0.25% |
| LULULEMON ATHLETICA INC | 1,079,708 | 0.01% |
| MANULIFE FINL CORP | 63,243,269 | 0.68% |
| METHANEX CORP | 17,203,677 | 0.18% |
| MOLSON COORS BEVERAGE CO | 38,819,533 | 0.42% |
| NUTRIEN LTD | 81,952,497 | 0.88% |
| OPEN TEXT CORP | 14,434,349 | 0.15% |
| PEMBINA PIPELINE CORP | 47,881,124 | 0.51% |
| RESTAURANT BRANDS INTL INC | 60,511,853 | 0.65% |
| ROYAL BK CDA | 293,267,138 | 3.14% |
| SHOPIFY INC | 50,587,458 | 0.54% |
| STANTEC INC | 55,991,883 | 0.60% |
| SUN LIFE FINANCIAL INC. | 113,558,105 | 1.22% |
| SUNCOR ENERGY INC | 263,613,632 | 2.82% |
| TC ENERGY CORP | 156,811,481 | 1.68% |
| TECK RESOURCES LTD | 97,409,057 | 1.04% |
| TELUS CORPORATION | 51,944,182 | 0.56% |
| TELUS INTL CDA INC | 100,091 | 0.00% |
| THOMSON REUTERS CORP. | 42,760,760 | 0.46% |
| TORONTO DOMINION BK ONT | 288,275,711 | 3.09% |
| TRANSALTA CORP | 1,586,375 | 0.02% |
| Totals | 3,365,971,426 | 36.05% |
This portfolio closely follows what would be typically considered the TSX 60 index of companies. Notable Alberta companies on the list include the Big Four oilsands producers,Canada’s major pipeline companies and Stantec. The overall Canadian stock market which is dominated by financial (banks, insurers), energy companies, miners, utilities and energy companies mirrors the Canadian market and also includes IT firms such as Shopify, Celestica, Blackberry and Open Text which have listings in New York.
A key Canadian-based IT consolidator with shares listed in the U.S.missing from AIMCo’s list is Constellation Software. Constellation has a market capitalization of U.S.$56.6-billion. Over the past year Constellation’s shares have risen from U.S. $1700 to $U.S. 2600.
Defence and Tobacco
Finally, the portfolio has minimal exposure to defence contractors. The largest U.S. defence contractors by revenue include Boeing, Lockheed Martin, General Dynamics, Northrup Grumman and RTX (formerly Raytheon). AIMCo owns U.S. $2.856-million in Boeing shares and no other shares in American defence contractors.
The largest American tobacco groups are Philip Morris International Inc, and the Altria Group Inc. AIMCo owns no shares in these companies.
AIMCo appears to be doing a good job in avoiding Big tobacco and weapons’ manufacturers, backing up its claims as a socially responsible investor (save for fossil fuel investments)..
Questions
It is always easy to second guess portfolio managers. Still, questions remain about stock selection. Public sector pension fund boards, like the Local Authorities Pension Plan, establish a Statement of Investment Policy and leave AIMCo to make stock selections. So long as AIMCo stays within the category parameters (e.g. 6-8 per cent Canadian equities), AIMCo’s performance through security selection will be judged against the relevant benchmarks.
Questions remain though-
- why is there a Canadian bias in AIMCo’s U.S. investment portfolio?
- why is AIMCo seriously underweight in the Magnificent 7 stocks?
- How much in capital gains has AIMCo foregone by being underweight in the MAG 7?
- Why has AIMCo minimal holdings in U.S.sectors such as financials, pharma, consumer products, and health care?
In the next segment, I examine AIMCo’s broader portfolio and performance.
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