Market Commentary
December 2011
Saturday, December 31, 2011
The Enervest Natural Resource Fund (ENRF) outperformed the benchmark during the year, returning -1.51% compared with -14.8% for the S&P/TSX Capped Energy Index. The cumulative return of the Fund since we took over management, from January 2009 to December 31, 2011, was more than
104% compared with 35% for the S&P/TSX Capped Energy Index during the same period.
After a strong selloff in the equity markets in August and September, a subsequent market rally occurred throughout October followed by continued volatility in the last two months of the year. Given this volatility and macro uncertainty, largely coming out of Europe, we have elected to remain relatively cautious in our approach. We expect this mindset to continue until greater clarity is provided regarding the unresolved issues in Europe.
During the summer months, we began to invest more heavily in liquids-rich natural gas producers with assets focused in the Alberta Deep Basin. This above average weighting was largely put in place due to strong condensate demand expected as a result of anticipated bitumen growth from the oil sands. While the fund experienced strong performance from its liquids rich natural gas weighting over the latter six months of 2011, we elected to lighten up on this subsector during the fourth quarter despite the strong forecasted condensate demand over the near term. The reason for this is that natural gas storage levels are currently at all-time highs with an abundance of supply, so our near term pricing outlook remains bearish.
Exiting 2011, our approach remains cautious and we continue to look for undervalued opportunities with a bias towards flight to quality and liquidity, in addition to solid growth orientated stories. The portfolio continues to have an overweight exposure to the liquids-rich natural gas sector, but more so to infrastructure companies rather than the exploration and production companies. We believe that the current defensive stance in the Fund's holdings, along with a number of high growth, high impact companies, has the Fund very well positioned entering 2012.