Sprott Canadian Equity Fund

Transcription

1 Sprott Canadian Equity Fund ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE DECEMBER 31 The annual management report of fund performance is an analysis and explanation that is designed to complement and supplement an investment fund s financial statements. This report contains financial highlights but does not contain the complete annual financial statements of the investment fund. You can get a copy of the annual financial statements at your request, and at no cost, by calling , by visiting our website at or SEDAR at or by writing to us at: Ninepoint Partners LP, Royal Bank Plaza, South Tower, 200 Bay Street, Suite 2700, P.O. Box 27, Toronto, Ontario M5J 2J1. Securityholders may also contact us using one of these methods to request a copy of the investment fund s proxy voting policies and procedures, proxy voting disclosure record or quarterly portfolio disclosure.

2 Sprott Canadian Equity Fund December 31, Management Discussion of Fund Performance Investment Objective and Strategies The objective of the Sprott Canadian Equity Fund (the Fund ) is to outperform the broad Canadian equity market as measured by the S&P/TSX Composite Total Return Index, over the long-term of five-plus years, providing long-term capital appreciation and value by investing primarily in small to mid-capitalization stocks of Canadian issuers. To achieve the Fund s investment objective, the Fund may focus its assets in specific industry sectors and asset classes based on an analysis of business cycles, industry sectors and market outlook. As part of its investment strategy, the Fund may: deviate from NI restrictions as it has obtained exemptive relief that permits the Fund to invest up to 20% of its net assets, taken at market value at the time of investment, directly in gold bullion or permitted gold certificates and silver bullion; engage in short selling up to 20% of the Fund s total net assets as a result of special relief it obtained from Canadian securities regulators; and invest in foreign securities up to a maximum of 35% of its assets. Risks The risks of investing in the Fund are described in the Fund s simplified prospectus. This Fund is suitable for those investors who are less conservative and have a high risk tolerance, with the expectation of higher long-term returns, which requires the ability to assume short-term volatility within a long-term investment horizon. There were no significant changes to the investment objective and strategies that affected the Fund s overall level of risk during the reporting period. Results of Operations and Recent Developments The Fund, Series A returned -2.9% in, while its benchmark, the S&P/TSX Composite Total Return Index, returned 9.1%. Canadian energy sector companies declined during the year amid fears of a U.S. border adjustment tax, the possibility that the U.S. would leave the North American Free Trade Agreement, a strengthening Canadian dollar and U.S. shale production growth. These negative factors were offset by production cuts from the Organization of Petroleum Exporting Countries, inventory reductions, demand strength and natural gas declines. The price of West Texas Intermediate crude oil ended the year approximately 12% higher, but many stocks were slow to respond to higher commodity prices and the energy sector underperformed. Changes to Canadian mortgage rules in made qualifying for mortgages more difficult and reduced the size of mortgages for which Canadians could qualify. This led to national decreases in mortgage originations in the prime mortgage business. Regulatory issues at Home Capital Group Inc. also caused negative sentiment towards mortgage lenders. Significant individual contributors included Ferroglobe PLC and Jackpotjoy PLC. Ferroglobe stock appreciated significantly in response to higher silicon prices along with strong management execution of an accretive acquisition amid industry consolidation. The company also benefited from a planned divestiture of non-core assets and a positive trade case related to dumping/tariffs. Jackpotjoy, which includes its early- acquisition of Intertain Group Ltd., reported growing earnings and improved earnings before interest, taxes, depreciation and amortization. The company also refinanced debt at an advantageous rate and listed its stock in the U.K., which is traditionally a more receptive market than Canada for gaming companies. The Fund s overweight allocation to the energy sector detracted from performance. The Manager held and added to the Fund s energy sector positions owing to the fact that the correlation between the commodity and stocks has historically been around 90%, and the Manager has a continued belief that the stocks will rise to catch up to the commodity prices. Significant individual detractors from the Fund s performance included Street Capital Group Inc., a Canadian schedule 1 bank involved in prime mortgage origination that came under pressure as the result of regulatory changes. The Manager held the position given that Street Capital had received its Schedule 1 bank licence in the year, which permitted the company to expand into new products. Over the year, the Manager reduced the Fund s exposure to highly levered companies. NINEPOINT PARTNERS LP ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE

3 Sprott Canadian Equity Fund December 31, The Fund s net asset value decreased by 41.6% during the period, from million as at December 31, to 62.3 million as at December 31,. This change was predominantly due to net redemptions of 40.0 million and net realized and unrealized investment losses of 1.4 million. The management expense ratio increased slightly, while the trading expense ratio decreased from the prior period. Ninepoint Partners LP is the manager and portfolio advisor of the Fund. Prior to August 1,, Sprott Asset Management LP was the manager and portfolio advisor of the Fund. Ninepoint Partners LP assumed the portfolio management of the Canadian diversified asset business of Sprott Asset Management LP on August 1,. Related Party Transactions MANAGEMENT FEES The Fund pays a management fee to the Manager, at an annual rate of 2.5% for Series A units, 1.5% for Series F units and as negotiated by the unitholders for Series I. The management fee is calculated and accrued daily and is paid monthly based on the daily net asset value of that series of the Fund. For the year ended December 31,, the Fund incurred management fees of 2,102,944 (including taxes). The breakdown of the services received in consideration of the management fees, as a percentage of management fees, is as follows: Portfolio Advisory Trailing Commissions Sprott Canadian Equity Fund Series A 60% 40% Sprott Canadian Equity Fund Series F 100% Sprott Canadian Equity Fund Series I 100% Out of the management fees that the Manager or former manager received from the Fund, the Manager or former manager paid trailer commissions of 80,815 during the year ended December 31, to Sprott Private Wealth LP, an affiliate of the former manager. INCENTIVE FEES The Fund also pays the Manger an annual incentive fee, equal to a percentage of the average net asset value of the applicable Series of the Fund. Such percentage will be equal to 10% of the difference by which the return in the net asset value per unit of the applicable Series from January 1 to December 31 exceeds the percentage return of the S&P/TSX Composite Total Return Index for the same period. If the performance of a Series of the Fund in any year is less than the performance of the Index (the Deficiency ), then no incentive fee will be payable until the performance of the applicable Series of the Fund, on a cumulative basis, has exceeded the amount of the Deficiency. For the year ended December 31, the Fund did not accrue any incentive fees. OPERATING EXPENSES The Fund pays its own operating expenses, which include, but are not limited to, audit, legal, custodial, trustee, filing and administrative expenses as well as unitholder reporting costs. The Manager pays certain of these expenses on behalf of the Fund and then is reimbursed by the Fund. OTHER RELATED PARTY TRANSACTIONS For related party transactions, the Fund relied on the approval, positive recommendation or standing instruction from the Fund s Independent Review Committee. NINEPOINT PARTNERS LP ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE

4 Sprott Canadian Equity Fund December 31, Financial Highlights The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for the year ended December 31, and the years shown. The Fund s Net Assets per Unit 1 Series A Net assets, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.67) (0.78) (0.97) (0.76) (0.82) Realized gains (losses) for the period (0.17) (5.86) (16.17) (4.09) 1.65 Unrealized gains (losses) for the period (0.11) (13.48) Total increase (decrease) from operations 2 (0.82) (0.41) (2.13) 0.44 (12.50) Distributions: From income (excluding dividends) From dividends From capital gains Return of capital Total annual distributions Net assets, end of period Series F Net assets, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.51) (0.59) (0.69) (0.51) (0.54) Realized gains (losses) for the period (0.12) (6.38) (16.36) (4.26) 1.60 Unrealized gains (losses) for the period (0.75) (13.44) Total increase (decrease) from operations 2 (1.22) (0.88) (2.15) 0.32 (12.23) Distributions: From income (excluding dividends) From dividends From capital gains Return of capital Total annual distributions Net assets, end of period NINEPOINT PARTNERS LP ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE

5 Sprott Canadian Equity Fund December 31, Series I Net assets, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.25) (0.25) (0.12) (0.12) Realized gains (losses) for the period (6.65) (18.90) (4.40) 1.19 Unrealized gains (losses) for the period (11.82) Total increase (decrease) from operations 2 (0.39) (0.63) 1.14 (10.58) Distributions: From income (excluding dividends) From dividends From capital gains Return of capital Total annual distributions Net assets, end of period This information is derived from the Fund s audited annual financial statements. 2 The increase/decrease from operations is based on the weighted average number of units outstanding over the financial period. Net assets and distributions are based on the actual number of units outstanding at the relevant time. This table is not intended to be a reconciliation of beginning to ending net assets per unit. 3 All outstanding Series I units were fully redeemed during the year ended December 31,. NINEPOINT PARTNERS LP ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE

6 Sprott Canadian Equity Fund December 31, Ratios and Supplemental Data Series A Total net asset value (000s) 1 59,584 96, , , ,968 Number of units outstanding 1 3,757,404 5,909,491 9,267,721 13,026,589 18,227,458 Management expense ratio % 3.36% 3.35% 3.22% 3.22% Trading expense ratio % 1.41% 1.22% 0.21% 0.15% Portfolio turnover rate % % % 35.00% 22.98% Net asset value per unit Series F Total net asset value (000s) 1 2,759 10,216 30,655 47,243 56,477 Number of units outstanding 1 166, ,978 1,803,344 2,382,772 2,835,772 Management expense ratio % 2.34% 2.27% 2.12% 2.12% Trading expense ratio % 1.41% 1.22% 0.21% 0.15% Portfolio turnover rate % % % 35.00% 22.98% Net asset value per unit Series I Total net asset value (000s) 1 3,686 9,374 13,765 Number of units outstanding 1 195, , ,237 Management expense ratio % 0.45% 0.47% Trading expense ratio % 0.21% 0.15% Portfolio turnover rate % 35.00% 22.98% Net asset value per unit The information is provided as at December 31 of the years shown. 2 Management expense ratio ( MER ) is based on total expenses (including incentive fees, if any; excluding commissions and other portfolio transaction costs) for the stated period and is expressed as an annualized percentage of the daily average net asset value during the period. 3 The trading expense ratio ( TER ) represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. The TER includes dividend expense and securities borrowing expense paid by the Fund in connection with securities sold short. 4 The Fund s portfolio turnover rate indicates how actively the Fund s portfolio adviser trades its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher the Fund s portfolio turnover rate in a year, the greater the trading costs payable by the Fund in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of the Fund. NINEPOINT PARTNERS LP ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE

7 Sprott Canadian Equity Fund December 31, Past Performance The indicated rates of return are the historical total returns including changes in unit values and assume reinvestment of all distributions in additional units of the relevant Series of the Fund. These returns do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that may reduce returns. Please note that past performance is not indicative of future performance. All rates of return are calculated based on the Net Asset Value of the particular Series of the Fund. Year-by-Year Returns The following chart indicates the performance of each Series of the Fund for the previous twelve-month periods ended December 31 shown, unless otherwise noted. The chart shows, in percentage terms, how much an investment made on the first day of each period would have grown or decreased by the last day of each period Return (%) * ** ** Series A Series F Series I * Return from November 3, 2009 (launch date) to December 31, 2009 for Series I (not annualized). ** There were no Series I units outstanding as at the period end. NINEPOINT PARTNERS LP ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE

8 Sprott Canadian Equity Fund December 31, Long and Short Portfolio Returns The following table illustrates the contribution to the return of the Fund (before the impact of Fund expenses) by the long portfolio and the short portfolio of the Fund for the previous twelve-month periods ended December 31 shown, unless otherwise noted. For the purposes of this disclosure, certain derivatives may be considered to be part of the short portfolio. Return (%)** Long Portfolio Short Portfolio Annual Compound Returns The following table illustrates the annual compound total return for each of units of the Fund for the periods shown. As a basis of performance comparison, the annual compound return of the Fund is compared to that of the S&P/TSX Composite Total Return Index (the Index ). The Index is a capitalization-weighted index that represents some of the largest float-adjusted stocks on the Toronto Stock Exchange. Since the Fund does not necessarily invest in the same securities or in the same proportion as the Index, the performance of the Fund is not expected to equal the performance of the Index. 1-Year 3-Year 5-Year 10-Year Since Inception* Sprott Canadian Equity Fund Series A -2.9% -6.8% -12.8% -9.7% 7.5% S&P/TSX Composite Total Return Index 9.1% 6.6% 8.6% 4.7% 6.7% Sprott Canadian Equity Fund Series F -1.9% -5.8% -11.9% -8.7% -1.3% S&P/TSX Composite Total Return Index 9.1% 6.6% 8.6% 4.7% 7.7% Long Portfolio -0.4% -3.0% -9.7% -7.8% Short Portfolio 0.1% -1.9% -1.2% -1.5% * Since launch date of September 26, 1997 for Series A and October 12, 2004 for Series F. Returns for Series I are not shown as there were no Series I units outstanding as at December 31,. NINEPOINT PARTNERS LP ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE

9 Sprott Canadian Equity Fund December 31, Summary of Investment Portfolio As at December 31, Portfolio Allocation Top 25 Long Positions % of Net Asset Value Issuer % of Net Asset Value Long Positions TSO3 Inc Energy 51.8 Jackpotjoy PLC 7.5 Health Care 15.3 Ferroglobe PLC 7.0 Consumer Discretionary 8.5 Spartan Energy Corp. 6.9 Information Technology 7.3 Street Capital Group Inc. 6.2 Materials 7.0 Crescent Point Energy Corp. 6.0 Financials 6.3 Whiting Petroleum Corp. 5.5 Industrial Products 2.2 TORC Oil and Gas Ltd. 5.4 Real Estate 0.4 Baytex Energy Corp. 5.0 Total Long Positions 98.8 Athabasca Oil Corp. 2.9 Cash 0.9 CGI Group Inc. 2.5 Other Net Assets 0.3 Spectra7 Microsystems Inc. 2.4 Total Net Asset Value Whitecap Resources Inc. 2.3 Ring Energy Inc 2.3 Callon Petroleum Co. 2.3 Carrizo Oil & Gas Inc. 2.1 Continental Resources Inc. 2.0 Open Text Corp. 1.4 Range Resources Corp. 1.4 Transocean Ltd. 1.3 Ensco PLC 1.2 Cardinal Energy Ltd. 1.2 Schlumberger Ltd. 1.2 SNC-Lavalin Group Inc. 1.1 Tamarack Valley Energy Ltd. 1.1 Top 25 long positions as a percentage of net asset value 93.5 The Fund held no short positions as at December 31, This summary of investment portfolio may change due to the ongoing portfolio transactions of the Fund. Quarterly updates of the Fund s investment portfolio are available on the Internet at NINEPOINT PARTNERS LP ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE

10 Corporate Information Corporate Address Ninepoint Partners LP Royal Bank Plaza, South Tower 200 Bay Street, Suite 2700, P.O. Box 27 Toronto, Ontario M5J 2J1 T TOLL-FREE F E invest@ninepoint.com For additional information visit our website: Call our mutual fund information line for daily closing prices: or Auditors KPMG LLP Bay Adelaide Centre 333 Bay Street Suite 4600 Toronto, Ontario M5H 2S5 Legal Counsel Borden Ladner Gervais LLP Scotia Plaza 40 King Street West Toronto, Ontario M5H 3Y4 M 01 E