Market Commentary

March 2011

Tuesday, March 01, 2011

2011 Continuing Strong Performance

Year-to-date the Fund is outperforming the Index with returns of 19.9% compared to 12.4% for the Index. For the year to date, Henry Hub Natural Gas prices are up 1.2% and the Spot WTI Crude Oil price is up 0.4%.

Similar to January, the Fund generated strong returns in February. We continued to realize gains during the month and while doing so, took a more conservative stance by consciously increasing our cash and cash equivalent position to 11%. In October and November of 2010, we increased our position in the oil and natural gas services sector and recent gains in the Fund are largely attributable to these investments. However, as this group tends to be a late-cycle sector, we have elected to preserve the returns by selling down many of our positions and building up cash. As we are writing this letter in the first week of March, the energy sector has made a significant correction and we are redeploying the cash in investments we like, which are now trading 20-25% below where they were two weeks ago.

The unrest in the middle east has increased uncertainty around oil supplies thus providing support for rising oil prices and creating an increasing appetite for energy equities. We continued to see convertible debentures and equity issues in February bolstering balance sheets and expanding capital programs for oil and natural gas companies. We expect this will keep the oil and natural gas service companies very busy so we intend to maintain a heavier weighting in that sector, despite the partial sell-down noted above.

Our stance on natural gas remains unchanged. Given the ongoing uncertainty around natural gas prices, we will not try to anticipate the recovery in price but rather be reactionary. However, we continue to favor natural gas producers with higher liquids (condensate) content. Condensate trades at a premium to West Texas crude oil because of demand for its use as a heavy oil diluent. The condensate is mixed with heavy oil to create ‘dilbit’ which flows easier to the refiners. The forecast is for increasing production of heavy oil which will keep the demand for condensate high as well.

One of our advantages is the ability to source transactions via our local knowledge and close relationships with oil-patch executives. A year ago we participated in an equity issue offered by a private oil and gas company, Cutpick Energy Inc. at $2.25/share. All of the energy funds we manage, including this Fund, invested in this offering. This month, the company closed an $80 million equity financing at $8.00/share. Cutpick is now the second largest position in the Fund.

Views contained in this report regarding a particular company, security, industry or market sector are the views of the writers and do not necessarily represent the views of Canoe Financial LP (“Canoe”). Views expressed should not be considered a recommendation to buy or sell and this memorandum does not constitute an offer to sell or a solicitation to buy the securities referred to herein or any of the Canoe investment funds. Information contained in this report is current as of the date of publication and has been obtained from third party sources believed to be reliable. Canoe does not warrant or make any representations in any way regarding the use of the information continued herein and does not accept any responsibility for any loss or damage that results from its use. Canoe investment funds are made by prospectus, which contain important information about the securities being offered. Investors should read the prospectus before making an investment decision. Copies of prospectuses may be obtained from your Investment Advisor.