December 31, 2024
Commentary
Year End Commentary
Gold stocks faced challenges in 2024, underperforming gold bullion despite a strong 27% rise in gold prices. Gold equity indices lagged, with the S&P/TSX Gold Index (in US$) up only 16%, GDX gaining 9%, and GDXJ 13%. This underperformance highlights the inherent difficulty of investing in resource stocks, which not only struggled to translate higher commodity prices into shareholder returns but also faced stiff competition for investor attention from the continued robust performance of U.S. tech stocks and the steady gains of the S&P 500. The strong appeal of these alternatives has further compounded the challenges for resource equities, limiting their ability to attract capital.
The flow-through funds, which focus on micro-cap Canadian resource stocks, have faced significant headwinds. Portfolio stocks have underperformed, lagging behind both larger peers and the broader movement of commodity prices. This underperformance stems largely from limited investor fund flows, which have reduced the appeal and growth potential of these smaller stocks. Additionally, the shift from active management to passive exchange-traded funds (ETFs) has further constrained capital allocation to micro-caps, leaving them at a competitive disadvantage. Compounding these challenges is the lax regulatory oversight of short selling in Canada, which has disproportionately affected micro-cap resource stocks. The ability of short sellers to target these smaller, more thinly traded equities without significant regulatory scrutiny has amplified downward pressure on their valuations, creating an additional hurdle for these companies in attracting the necessary capital for growth.
After-tax returns are the most relevant metric, as the product is specifically designed to mitigate tax liabilities.
The challenges for micro-cap resource stocks—and, by extension, flow-through funds—are also compounded by broader struggles in Canadian capital markets. Actively managed Canadian mining funds have declined dramatically, with assets under management falling 82.5% from $16 billion in 2010 to just $2.8 billion (year end 2023). Much of this capital has moved into passive ETFs, which typically do not participate in new issues and are often limited by environmental, social, and governance (ESG) criteria. As a result, micro-cap stocks face greater difficulty attracting the necessary investments to thrive in an increasingly competitive landscape.
Despite these challenges, opportunities exist that could reinvigorate the sector. Increased mergers and acquisitions (M&A) activity could spotlight micro-cap companies, attracting investor interest by highlighting growth potential. Additionally, a broader market correction might push investors toward undervalued opportunities, encouraging renewed interest in overlooked micro-cap stocks. Positive earnings from producing companies in the resource sector could further boost confidence and attract the capital these companies need to compete more effectively.
As we assess the performance of the Flow-Through LPs, it is crucial to consider the historical track record and evaluate returns on an after-tax basis. Remaining committed to the flow-through strategy during periods of underperformance is equally important. Our track record demonstrates the long-term benefits of consistent participation in this space.
Many investors focus on pre-tax returns, which can be misleading, as actual returns are often reduced by taxation on capital gains and income. For flow-through funds, after-tax returns are the most relevant metric, as the product is specifically designed to mitigate tax liabilities. While these returns are only available at the fund’s termination, it is important to assess performance using the appropriate benchmarks. Investors often mistakenly evaluate performance using the initial offering price of $25 per unit, without accounting for fees, premiums on flow-through shares, or tax benefits.
For example, the 2025 Flow-Through LP prospectus states that the after-tax breakeven point for an Ontario investor in the highest tax bracket is approximately $11.50 per unit, assuming 30% eligibility for the Critical Minerals Exploration Tax Credit. This figure serves as the more accurate benchmark for evaluating fund performance, as it incorporates the substantial impact of tax benefits on per-unit economics.
As of December 31, 2024, the Net Asset Value (NAV) per unit stood at $11.59 for the 2023 National Fund, $15.66 for the 2023 Short Duration Fund, $16.00 for the 2024 National Class, and $17.03 for the 2024 II Fund.
Ninepoint 2023 Flow-Through - Compound Returns¹ as of December 31, 2024 (Series F) | Inception Date: February 14, 2023
1M |
3M |
6M |
YTD |
1YR |
Inception |
|
|---|---|---|---|---|---|---|
Fund |
-9.07% |
-17.39% |
0.67% |
-29.59% |
-29.59% |
-31.93% |
Ninepoint 2023 Flow-Through Short Duration - Compound Returns¹ as of December 31, 2024 (Series F) | Inception Date: October 5, 2023
1M |
3M |
6M |
YTD |
1YR |
Inception |
|
|---|---|---|---|---|---|---|
Fund |
-4.51% |
-8.51% |
-3.92% |
-34.36% |
-34.36% |
-30.13% |