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Junior energy firms drag down fund results

swon@globeandmail.com

What are we looking for?

How energy funds are faring amid falling oil prices.

Crude oil futures in New York plunged to the $80 (U.S)-per-barrel range in June on slower global growth after surging to a high of $110 in February.

The screen

We looked for the energy-focused funds that were hit hardest in the first six months of this year. U.S. dollar, segregated and duplicate versions of funds were excluded.

What did we find?

Funds loaded with junior energy firms took the worst beating.

While depressed prices for oil and natural gas hurt all energy producers, smaller firms usually suffer the biggest damage because they're perceived to be riskier than their larger-capitalization cousins. (Of course, when prices rebound, smaller firms tend to enjoy a larger bounce than large firms.)

Qwest Energy Canadian Resources, which invests in micro-cap oil and gas names, was the biggest loser with a 32.1-per-cent decline during the first six months of this year. The fund struggled because of investors' growing aversion to smaller-cap names during the volatile markets of the past year, said its manager Don Short of Qwest Investment Fund Management Ltd. "The world is looking for yield and large caps."

Redwood Energy Growth Growth Class (formerly Redwood Catapult Energy Class) lost 31.4 per cent, while Redwood Energy Income Class (formerly Redwood Ark Energy Class) tumbled 30.2 per cent. It might seem odd that the latter, an income fund, would get hurt so badly given that dividends can help cushion falling stock prices. However, the fund only changed its mandate in May. It now must hold at least 50 per cent of its assets in dividend payers, but continues to have exposure to juniors.

The $1.6-million HBP Junior Oil and Gas exchange-traded fund [ETF] has become a victim of declining commodity prices. It will be delisted next month even though it was only launched in early 2011. The ETF is not attracting enough assets to be economically viable after losing 26.5 per cent for six months and 36 per cent over a year, said Howard Atkinson, president of Horizons ETF Management Inc.

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ENERGY FUNDS HIT HARDEST IN THE FIRST SIX MONTHS OF 2012

Assetsto June 30/2012Calendar Year Returns
Fund NameMER(in mill.)YTD1 Year3 Years2011201020092008
Qwest Energy Canadian Resource Cl A4.0916.2-32.06%-53.46%-13.24%-42.00%22.54%15.28%-40.37%
Redwood Energy Growth Class - A4.813.7-31.38%-33.40%4.43%-2.39%16.14%93.10%
Redwood Energy Income Class - A5.231.7-30.15%-44.78%0.11%-21.81%26.79%74.10%
HBP Junior Oil and Gas Index0.341.6-26.46%-36.00%
CIBC Energy2.46126.8-26.05%-37.68%-2.95%-27.77%39.21%56.74%-38.23%
Middlefield Groppe Tact Energy A2.9224.6-25.09%-27.90%6.60%7.75%
Sprott Energy3.0394.2-24.44%-27.66%8.76%-10.95%32.65%76.07%-64.49%
Matco Energy Fund Corporate Class2.642.8-21.16%-30.70%4.41%-10.14%22.44%48.35%-38.02%
Sentry Energy Growth & Income2.80125.1-21.13%-22.06%9.82%3.55%29.14%
RBC Global Energy2.13325.6-20.16%-27.63%4.44%-5.22%19.44%40.94%-48.98%
IA Clarington Energy Cl-A2.703.8-18.89%-31.29%-12.22%
Altamira Energy Fund2.6215.5-17.35%-23.73%4.97%-8.43%22.25%38.92%-37.91%
EnerVest Natural Resource Fund Ltd*2.9521.2-16.44%-26.78%13.72%-1.51%35.90%52.46%-50.85%
BMO Junior Gas Index ETF0.625.9-15.77%-22.99%2.21%
First Asset Can-Energy Cvd Call ETF0.682.0-13.39%-21.92%
S&P/TSX Total Return-1.53%-10.25%6.69%-8.71%17.61%35.06%-33.00%
S&P/TSX Capped Energy-12.40%-25.47%-3.83%-16.83%8.68%37.35%-38.18%
*Invests mainly in energy securities
Source: Lipper

© 2007 The Globe and Mail. All rights reserved.

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