Eric Nuttall’s?Sprott Energy Fund has gained 16% this year, making it the sector’s top performer in Canada, yet it features a cash weighting of 60 percent and only owns one oil stock.
The key to the fund’s success in what has generally been a lacklustre market would be a canny decision to buy into high-quality, but massively oversold Canadian light oil companies for example?Whitecap Resources Inc. (WCP/TSX), Spartan Energy Corp. (SPE/TSX) and Crescent Point Energy Corp. (CPG/TSX) before the sector rebounded about a month ago.
In the procedure, the portfolio manager at Sprott Asset Management took the fund’s cash position down to about 14 per cent from up to 70 per cent in early 2015.
But now that the rebound looks significantly overdone, since Canadian oil stocks are generally discounting oil prices more than US$70 per barrel, he has returned to some bearish stance, holding just one oil stock, Tamarack Valley Energy Ltd. (TVE/TSX-V), which has assets in the Cardium and Viking oil plays.
The investor euphoria with oil stocks on both sides of the border means they are now fairly priced at oil at a price of around US$50, but that\’s an unsustainable level for companies to drill at, which has triggered dramatic declines in drilling activity and production.
The production declines shouldn’t came as a surprise since most U.S. drilling has been around plays that need oil within the US$60 range to keep flat production.