Ninepoint Energy Fund Marketview

June 23, 2022

Strategy Update

Since mid-May, oil has fallen by about 13% while energy stocks have been obliterated. In recent days, with stocks falling by 8%-10%, the action feels capitulative. Why have energy stocks collapsed, even when they were mispriced in our opinion to begin with?

For much of the year, energy was the only positive performing game in town and we had received much feedback from advisors that having energy allocation had “saved their year.Could it be that with recessionary fears increasing and the broader market selling off further that energy stocks have been a source of funds? Is it easier to sell your winner or sell your losers? This could partially explain it.

Currently, fear of a recession is causing extreme concern about the outlook for oil demand. We do NOT share these concerns. Real time gauges suggest ZERO degradation in demand so we are essentially fighting the equivalent of the boogeyman, while we can forecast that looming supply growth challenges will offset any degradation in demand growth. All we can do is continue to monitor our macro indicators for any sign that we are wrong but these two that we follow suggest our macro call remains valid:

On to energy stocks, they have been absolutely obliterated with some falling by over 35% in the past 2 weeks. Feedback from traders today suggests there is NO large selling, but rather retail panicking, institutions preferring to sit on their hands given the volatility, and algo/quant funds having a field day.

What of valuations? The panic of today to me feels exactly like March 2020, which is staggering as oil is still trading above $100WTI. We still believe in all of the tenets of our multi-year bull market thesis and as such believe in a $100WTI fundamental floor over the next 5-6+ years, while acknowledging that at times we can undershoot this if panic becomes rampant. At $100WTI energy stocks are PROFOUNDLY mispriced:

Even if oil were to collapse, energy stocks would remain attractively valued with the sector trading at an average free cashflow yield of 18% at $70WTI:

In summary, we remain very bullish, and can find little to no fundamental explanation for the severe pummeling of recent weeks. Below is a report from RBC that corroborates what we are seeing in the physical market, and we have to the best of our ability exposed the fund to high quality companies, trading at valuations that make no sense to us, and who have committed to returning most if not all of their free cashflow back to us in the form of dividends and buybacks. As in the past, this too shall pass and we are adding to core names as funds flow allows.

Eric Nuttall 
Senior Portfolio Manager
Ninepoint Partners

NINEPOINT ENERGY FUND - COMPOUNDED RETURNS¹ AS OF MAY 31, 2022 (SERIES F NPP008) | INCEPTION DATE APRIL 15, 2004

1MTH YTD 3MTH 6MTH 1YR 3YR 5YR 10YR 15YR INCEPTION
FUND 12.2 63.4 20.9 79.3 132.4 64.8 20.8 9.1 3.0 8.3
'S&P/TSX CAPPED ENERGY TR 11.6 66.0 29.9 73.2 114.2 28.3 11.4 4.6 1.2 5.5

1 All returns and fund details are a) based on Series F units; b) net of fees; c) annualized if period is greater than one year; d) as at May 31, 2022. The index is 100% S&P/TSX Capped Energy TRI and is computed by Ninepoint Partners LP based on publicly available index information.

The Fund is generally exposed to the following risks. See the prospectus of the Fund for a description of these risks: concentration risk; credit risk; currency risk; cybersecurity risk; derivatives risk; exchange traded funds risk; foreign investment risk; inflation risk; interest rate risk; liquidity risk; market risk; regulatory risk; securities lending, repurchase and reverse repurchase transactions risk; series risk; short selling risk; small capitalization natural resource company risk; specific issuer risk; tax risk.

Ninepoint Partners LP is the investment manager to the Ninepoint Funds (collectively, the “Funds”). Commissions, trailing commissions, management fees, performance fees (if any), other charges and expenses all may be associated with mutual fund investments. Please read the prospectus carefully before investing. The indicated rate of return for series F units of the Fund for the period ended May 31, 2022 is based on the historical annual compounded total return including changes in unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Fund may be lawfully sold in their jurisdiction.

The opinions, estimates and projections (“information”) contained within this report are solely those of Ninepoint Partners LP and are subject to change without notice. Ninepoint Partners makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, Ninepoint Partners assumes no responsibility for any losses or damages, whether direct or indirect, which arise out of the use of this information. Ninepoint Partners is not under any obligation to update or keep current the information contained herein. The information should not be regarded by recipients as a substitute for the exercise of their own judgment. Please contact your own personal advisor on your particular circumstances. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Ninepoint Partners. Any reference to a particular company is for illustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any investment fund managed by Ninepoint Partners is or will be invested. Ninepoint Partners LP and/or its affiliates may collectively beneficially own/control 1% or more of any class of the equity securities of the issuers mentioned in this report. Ninepoint Partners LP and/or its affiliates may hold short position in any class of the equity securities of the issuers mentioned in this report. During the preceding 12 months, Ninepoint Partners LP and/or its affiliates may have received remuneration other than normal course investment advisory or trade execution services from the issuers mentioned in this report.

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