B10 G THE GLOBE AND MAIL | WEDNESDAY, MAY 14, 2025 GLOBE INVESTOR | REPORT ON BUSINESS [ CHARTING RETIREMENT ] Total retirement income under three decumulation strategies Age 65 70 75 80 85 90 0 20K 40K 60K 80K 100K 120K 140K $160K Use algorithm Use 4% rule Draw interest only THE GLOBE AND MAIL, SOURCE: AUTHOR’S CALCULATIONS Aspiring retirees consider three strategies to make sure they don’t run out of money P at, 63, and Maggie, 60, are about to retire. Between the two of them, they have $800,000 in RRSPs and $200,000 in TFSA assets. They are also entitled to 90 per cent of the maximum CPP pension plus full OAS pensions. Their goal is to draw as much income as they can from their savings while being reasonably sure their money will last until their 90s. They consider three strategies. The first is to draw only the interest each year and leave the principal untouched. This will ensure they will not outlive their money. The second strategy is to use the 4-per-cent rule – draw 4 per cent of their assets in year one of retirement and then increase with- drawals in future years to keep up with inflation. The third strategy is to dispense with rules of thumb and instead use an algorithm. An algorithm in this case simply means a set of calculations that solve for the optimal amount of income under certain economic assumptions. Every retirement calculator available online or through a fi- nancial planner is based on an algorithm, although some are more sophisticated than others. In the case of all three strategies, the economic assumptions used are (a) an investment return of 4.5 per cent before fees, (b) in- vestment fees of 1.5 per cent a year, and (c) future inflation at 2.2 per cent a year. The chart below shows the result. The interest-only approach ensures their savings never run out, but it doesn’t provide much income. The 4 per cent rule, which usually works, fails in this case because the net investment return is low. The use of an algorithm is the clear winner. While the comparison will vary based on the assumptions used, the main takeaway is to employ as much science and outside ex- pertise as you can when determining your withdrawals rather than relying on any simple rule of thumb. FREDERICK VETTESE T he fog of uncertainty creat- ed by U.S. President Donald Trump’s trade war is sud- denly lifting, although doubts over its longer-term economic impact will linger. As will another question: what was the point of all that ‘Liberation Day’ chaos and confusion? Mr. Trump, a consistent advo- cate of tariffs since the 1980s, made it very clear during his elec- tion campaign that he intended to significantly raise import le- vies. As the self-styled ‘Tariff Man,’ he vehemently argued that tariffs will help raise federal reve- nues, revitalize U.S. manufactur- ing, and reduce the country’s yawning trade deficit. One can argue the economic merits of his agenda, but no one, in good faith, can express sur- prise that he did exactly what he said he would do. But even some of Mr. Trump’s ardent backers are questioning the strategy and im- plementation. Was the aim to whip up eco- nomic and market chaos to gain maximum leverage over Ameri- ca’s trading partners and thereby secure the most favourable terms for Washington in subsequent trade talks? Maybe. Short-term havoc was certainly wreaked, with some US$6-trillion wiped off the value of U.S. stocks in the three days af- ter ‘Liberation Day.’ But now deals are getting done and all those losses have been erased – except, of course, for investors who got spooked and sold. But after all that, it’s unclear whether the tariffs that will result from these deals – which will like- ly be much lower than the ex- treme figures put forward a few weeks ago – will be significant enough to move the dial mea- ningfully on the U.S. trade deficit. And on the fiscal side, all tariffs announced so far this year are forecast to raise US$2.7-trillion in federal revenue over the 2026-35 decade, up from an estimated US$2.4-trillion before the U.S.- China ‘truce’ in Geneva, accord- ing to Yale Budget Lab, which pointed out that sky-high tariffs were far from ‘revenue optimal.’ Was the turbulence of the last several weeks worth an extra US$30-billion a year, or 0.1 per cent of GDP? Of course, US$2.7-trillion is not to be sniffed at, but it comes at a cost. Yale Budget Lab also esti- mates tariffs will knock 0.7 per- centage points off real U.S. GDP growth this year, and in the long run the U.S. economy will perma- nently be 0.4 percentage points smaller. The price level of goods across the country will be perma- nently higher too, economists reckon. Estimates vary, but the general view is that the global average ef- fective tariff rate will be some- where in the 13-18-per-cent range, down 10 percentage points from before the weekend truce but still the highest since before the Sec- ond World War, and significantly higher than 2.3 per cent at the end of last year. Meanwhile, U.S. consumer and business confidence has slumped to some of the lowest levels on re- cord, and consumer inflation ex- pectations are the highest in dec- ades. These indicators may im- prove in the months ahead, but much spending and investment have been put on hold due to the uncertainty and likely won’t be switched back on so quickly. Faith in America as a reliable partner has clearly been dimin- ished. As HSBC currency analysts reminded readers on Tuesday, “Trust takes years to build, sec- onds to break and forever to re- make.” REUTERS What was the point of April’s market chaos? Short-term havoc was certainly wreaked, but lasting gains remain unclear JAMIE McGEEVER ORLANDO Traders work on the floor of the New York Stock Exchange in April. Yale Budget Lab estimates tariffs will cut U.S. GDP growth by 0.7 percentage points this year. ADAM GRAY/GETTY IMAGES WHAT ARE WE SCREENING FOR? Undervalued U.S. large-cap ener- gy stocks. THE SCREEN North American equity markets were propelled higher on Monday following the announcement of a 90-day pause in the U.S.-China trade war. The S&P 500 index rose by 3.26 per cent, led by the auto- mobile, consumer discretionary, and transportation industry groups, while the VIX, a measure of market volatility, fell below 20 for the first time since March 28. This bullish sentiment could help sectors that have been lag- ging the major benchmark, how- ever headwinds may continue for the energy sector, with concerns that OPEC+, a group of 12 coun- tries that represent approximate- ly 40 per cent of global oil produc- tion, could continue to increase production output, driving down prices. The group increased out- put by more than previously ex- pected in April and have an- nounced production in May would rise by 411,000 barrels per day. If demand fails to keep pace, oil markets could remain over- supplied for the remainder of 2025. Aramco, a majority Saudi state- owned oil company, expects oil demand to remain resilient and grow if the U.S. and China can re- solve their tariff dispute, which could provide a boost to energy stocks following Monday’s tariff announcement. U.S. President Donald Trump is visiting the Gulf States on Tuesday, which could be another catalyst for energy mar- kets to advance. Today, we screen for U.S.-listed energy companies that are undervalued and poised for future growth. First, we screen for U.S.-listed energy companies with a market capitalization greater than US$1- billion. Next, we screen for compa- nies with strong forecast future growth rates. We use the Starmine Intrinsic Valuation Model to screen for companies with a price- to-intrinsic-valuation score of 95 or greater. The Intrinsic Valuation Model is a percentile ranking of stocks based on a dividend dis- count model valuation, with 100 representing the highest ranking. The dividend discount model is a valuation method based on the theory that a stock is worth the sum of all future dividend pay- ments. MORE ABOUT LONDON STOCK EXCHANGE GROUP The London Stock Exchange Group (LSEG) is one of the world’s largest providers of financial mar- ket data and infrastructure, serv- ing more than 40,000 institutions worldwide. LSEG provides infor- mation, insights, and technology that drive innovation and per- formance in global financial mar- kets, enabling the financial com- munity to trade smarter and fas- ter, overcome regulatory chal- lenges, and scale intelligently. WHAT WE FOUND The screen, ranked by StarMine Price-to-Intrinsic Value Rank, produced nine companies. Civitas Resources Inc., which scored 100 in the Starmine Price- to-Intrinsic Value Rank, is an in- dependent exploration and pro- duction company with assets in the D-J Basin in Colorado, and the Permian Basin in Texas and New Mexico. Civitas’s stock is down more than 37 per-cent year-to- date, and despite this pressure, management is confident in its ability to hit full-year 2025 net debt targets, and has maintained production and capex guidance with a base case oil price in the mid-to-low US$50s. The company delivered US$786-million in ad- justed EBITDAX (earnings before interest, taxes, depreciation, am- ortization and exploration) in the first quarter, and is expecting vol- ume growth of 4 per cent in the second quarter, while lowering cash operating costs by 7 per cent. Should oil prices remain de- pressed, Civitas has increased its hedging to nearly 50 per cent of 2025 oil production, providing a revenue floor of US$68 a barrel. Nov Inc., which scored 95 in the Starmine Price-to-Intrinsic Value Rank, was the only oil and gas equipment and services company to make the screen. Houston- based Nov is an independent pro- vider of equipment and technolo- gy to the oil and gas industry, and supports the industry’s drilling, completion and production needs. Nov delivered strong first- quarter results that were above analysts’ consensus, however the stock faced headwinds owing to the macro uncertainty related to tariffs, even though its businesses have limited exposure to them. During the recent earnings call, management provided second- quarter guidance of adjusted EBITDA of US$250-million to US$280-million, with revenue ex- pected to fall by 1-4 per cent. The onshore segment in the U.S. is ex- pected to face challenges if oil prices remain at current levels, and Nov is focused on growing its subsea business, mainly in deep- water and international uncon- ventional markets. Investors are advised to do their own research before trading in any of the securities shown. Nine energy stocks poised for future growth STEPHEN DONOVAN NUMBER CRUNCHER MBA and a Sales Specialist covering commodity markets at LSEG Select North American listed energy companies COMPANY TICKER MARKET CAP ($ MIL USD) STARMINE PRICE-TO-INTRINSIC VALUE RANK 1YR TOTAL RETURN (%) DIV. YIELD (%) RECENT CLOSE ($) Civitas Resources Inc. CIVI-N 2,749.62 100 -58.2 10.2 29.70 SM Energy Co. SM-N 2,837.52 99 -48.8 3.2 24.79 Mach Natural Resources LP MNR-N 1,694.58 98 -16.4 24.7 14.32 Murphy Oil Corp. MUR-N 3,279.62 97 -45.8 5.7 22.98 Ovintiv Inc. OVV-N 9,946.00 97 -21.2 3.1 38.10 APA Corp (US) APA-O 6,390.57 97 -38.7 5.6 17.71 Northern Oil and Gas Inc. NOG-N 2,783.46 97 -26.2 6.4 28.20 Coterra Energy Inc. CTRA-N 18,417.48 96 -11.5 3.6 24.13 Nov Inc. NOV-N 4,862.06 95 -30.2 2.3 12.94 Source: LSEG