The objective of the UIT Energy Producers Class is to achieve growth and to preserve capital by investing primarily in securities of North American oil producers. The fund will invest in an approximately equally weighted portfolio of 20 to 25 companies that are listed on North American exchanges and engaged primarily in oil exploration, development and production. The Portfolio Advisor will select securities it believes have the potential to outperform the S&P Global Energy Index or any successor index.
|Net Asset Value (NAV)|
|RAM 140||February 22, 2017|
|Asset Class||North American Equity|
|Minimum Initial Investment||$10,000|
|Net Asset Value Pricing||Daily|
WHY INVEST IN THIS FUND?
World oil prices have been low since 2014 and are now rising due to the following factors:
- Current oil prices are unsustainable as they do not attract enough capital to the sector to maintain production.
- OPEC does not have the spare capacity to offset further production declines in other regions.
- Prices are likely to overshoot on the upside as they did on the downside once the effects of 2 years of massive capital spending cuts begins to show up as production declines.
- North American oil companies have become much more efficient as the price of oil has declined and are positioned to outperform in a rising oil price environment.
- Oil demand has been solid throughout the price decline and shows no sign of rolling over.
However, since there’s been so little investment in the sector for two years, the Portfolio Advisor believes there’s a high possibility of demand exceeding output especially as the US economy continues its trajectory. That presents a sound prospect for investment.
Source: IEA, Raymond James & Associates, Bloomberg
The Portfolio Advisor sees the market moving towards a global oil environment where there is limited oil capacity, a situation the world has not seen for almost 40 years. Even with Iran and Iraq contributing to production, their output is not moving the needle. As a result, with OPEC countries producing at maximum capacity and North American producers coming off two years of reduced rig counts while improving efficiencies and reducing extraction costs, the Portfolio Advisor believes that North American oil producers will be able to meet global demand growth with increased production and operating efficiencies.
Rig counts have been severely cut in North America since the price drop in 2014. In the US, from a base count of 1,858 rigs, current rig counts are around 500. (Source) At the same time, production efficiencies are improving and can deliver solid results. Same time there have been numerous supply disruptions in Libya, Iran, Iraq, Syria and Nigeria that has taken over 2 million bpd offline since 2013.
There is distrust and a lack of agreement within OPEC that has weakened its influence on prices. International Energy Agency reports that Saudi is maintaining flat production over the last 18 months, while Iraq has increased production by 1 million bpd since 2014 and Iran has increased production by 600,000 bpd. However, over the last 18 months, production is flat. At the same time, we have seen prices drop over the last two years that has served to increase demand for oil and gasoline. 10-year average growth in demand for gasoline has been 0.04%, however since 2015, actual US gasoline demand as measured by IEA is up over 3.41%.
The Portfolio Advisor believes that North American producers will be the net beneficiaries of these factors. In Canada, the second half of 2016 will see a bounce in production from the shut down that occurred due to the massive forest fires in May. In the US, with increased efficiencies, a lower cost of extraction and increased demand from gasoline, we believe the excess demand will be provided by efficient producers and as such, we believe this is a timely investment opportunity.
The following chart and table illustrate the composition of the fund’s portfolio in respect of the corporate name, exchange and security allocation on an indicative basis if the Portfolio had existed on August 31, 2015 (the “Indicative Portfolio”).
|APACHE CORP||NYSE||5.00%||MURPHY OIL CORP||NYSE||5.00%|
|CONCHO RESOURCES INC||NYSE||5.00%||NEWFIELD EXPLORATION CO||NYSE||5.00%|
|CONTINENTAL RESOURCES INC||NYSE||5.00%||OCCIDENTAL PETROLEUM CORP||NYSE||5.00%|
|CRESCENT POINT ENERGY CORP||TSX||5.00%||PARSLEY ENERGY INC||NYSE||5.00%|
|CREW ENERGY INC||TSX||5.00%||PIONEER NATURAL RESOURCES CO||NYSE||5.00%|
|DEVON ENERGY CORP||NYSE||5.00%||RAGING RIVER EXPLORATION INC||TSX||5.00%|
|DIAMONDBACK ENERGY INC||NYSE||5.00%||RANGE RESOURCES CORP||NYSE||5.00%|
|ENERGEN CORP||NYSE||5.00%||SEVEN GENERATIONS ENERGY LTD||TSX||5.00%|
|HESS CORP||NYSE||5.00%||WHITECAP RESOURCES INC||TSX||5.00%|
|MARATHON OIL CORP||NYSE||5.00%||WHITING PETROLEUM CORP||NYSE||5.00%|
The information set out above is provided for illustrative purposes only. The portfolio may or may not include securities of issuers considered in compiling the foregoing analysis. The composition of the Portfolio may vary based on the Portfolio Manager’s assessment of market conditions and the availability of suitable securities and may differ from the Indicative Portfolio whose information is described above based on the Portfolio Managers assessment at the time of investment.
The fund is designed for an investor who views an investment in North American Energy equities as a timely investment and who has a relatively short investment horizon of 18 to 24 months. This is because within 18 to 24 months, depending on the outlook of the Portfolio Advisor, the manager, Redwood Asset Management Inc., may propose a re-organization or transfer of assets of the fund to another fund managed by Redwood and advised by the Portfolio Advisor or a change to the fundamental investment objectives of the fund, subject to applicable law.
THIS FUND IS SUITABLE FOR INVESTORS WHO:
- Have a tolerance for medium to high risk, with the expectation of higher volatility versus North American equity indices.
- Own, or plan to own, other types of investments to diversify their portfolio.
- Want exposure to both Canadian and U.S. based energy producers that are focused on oil production.
- Believe that crude oil prices will rise.
Disclaimer: Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rate of return is the historical annual compounded total return including changes in share value and reinvestment of all dividends or distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
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