Sprott Energy Opportunities Trust

Transcription

1 Sprott Energy Opportunities Trust SEMI-ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE JUNE The interim 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 interim financial statements of the investment fund. You can get a copy of the interim 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: Sprott Asset Management 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 Management Discussion of Fund Performance Investment Objective and Strategies The objective of the Sprott Energy Opportunities Trust (the Fund ) is to achieve long-term capital growth. The Fund invests primarily in equity and equity related securities of companies that are involved directly or indirectly in the exploration, development, production and distribution of oil, gas, coal, uranium and other related activities in the energy and resource sector. The Fund may follow a more concentrated investment approach and from time to time overweight certain sub-sectors within the energy and resource sector, when deemed appropriate by the Portfolio Adviser. This may result in the Fund s portfolio weighting being substantially different from the weightings of the S&P/TSX Capped Energy Total Return Index. As part of its investment strategy, the Fund may: engage in short selling up to 20% of the Fund s total net asset value as a result of special relief it obtained from Canadian securities regulators; and invest in and overweight cash and fixed income securities based on the market outlook for the energy sector. Risks The risks of investing in the Fund are described in the Fund s simplified prospectus. This Fund is suitable only for investors seeking long-term capital growth with a high tolerance for risk and volatility. Investors should be comfortable with high investment risks and have 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 Trust returned -40.4% during the first six months of 2017, compared to -21.2% for its benchmark, the S&P/TSX Capped Energy Total Return Index. During the period, strong global economic growth positively affected the growth in oil demand. The Organization of the Petroleum Exporting Countries' continued efforts to curtail production helped rebalance the market, with the International Energy Agency s estimated surplus oil inventories falling from 282 million barrels to 217 million barrels at the end of June. Strong sector rotation into stocks in the information technology sector resulted in fewer buyers of energy sector stocks, which led to a contraction of price-to-earnings multiples. We eliminated our Canadian exposure amid persistent worries about pipeline takeaway capacity as well as ongoing political uncertainty and support for the oil and gas sub-sector. We increased our exposure to service-related stocks given the very strong underlying demand for their products and services, as well as a situation of undersupply. An overweight position in services, specifically frac sand and pressure pumping, detracted from the Fund's performance as these areas are typically affected by changes in the market and declined more than larger, integrated companies given the sell-off in oil. The exposure to Canadian stocks earlier in the year also detracted amid concerns about the border adjustment tax. The tax was not implemented, but the stocks never recovered. Individual detractors from performance included Fairmount Santrol Holdings Inc., Hi-Crush Partners L.P. and Trican Well Service Ltd. These are all service stocks and are more sensitive to swings in the market, so they underperformed during the worst period ever of sequential declines in energy sector stocks. Individual contributors to the Fund's performance included Diamondback Energy Inc., RPC Inc. and SRC Energy Inc., which were all shorterterm holdings. In general, few stocks contributed to the Fund's performance as most were down materially over the period. No significant changes were made to the Fund s mandate. The Portfolio Adviser remains optimistic on the energy sector and believes that once sentiment improves, significant sector rotation will take place and energy sector stocks will rebound. The Fund s net asset value decreased by 38.8% during the period, from $44.1 million as of December 31, 2016, to $27.0 million as of June 30, This change was primarily due to $8.5 million of net realized losses on investments and $8.7 million of unrealized losses on investments. The management expense ratio decreased compared to the prior period.

3 Related Party Transactions MANAGEMENT FEES The Fund will pay to the Manager an annual management fee equal to 2.0% per annum of the NAV of the Fund. The management fee is calculated and accrued daily based on daily net asset value of that series of the Fund, and is paid monthly. For the six-month period ended June 30, 2017, the Fund incurred management fees of $395,397 (including taxes). 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 The Fund relied on the approval, positive recommendation or standing instruction from the Fund s Independent Review Committee with respect to any related party transactions.

4 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 six-month period ended June 30, 2017 and the years shown. The Fund s Net Assets per Unit 1 Jun 30, 2017 Dec 31, Initial offering price $10.00 Agents fee and issue expenses (0.20) Net assets, beginning of period $9.80 $9.80 Increase (decrease) from operations: Total revenue $0.01 $0.01 Total expenses (0.19) (0.04) Realized losses (1.86) (0.02) Unrealized gains (losses) (1.91) 0.05 Total increase (decrease) from operations 2 $(3.95) $ Distributions: From income (excluding dividends) From dividends From capital gains Return of capital Total annual distributions Net assets, end of period $5.84 $ This information is derived from the Fund s interim and 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 Information provided is for the period from December 19, 2016 (first issuance of unit) to December 31, 2016

5 Ratios and Supplemental Data Jun 30, 2017 Dec 31, 2016 Total net asset value (000s) 1 $26,972 $44,099 Number of units outstanding 1 4,620,028 4,500,028 Management expense ratio % 4.77% Trading expense ratio % 10.48% Portfolio turnover rate % 34.72% Net asset value per unit 1 $5.84 $ The information is provided as at June 30, 2017 and December 31 of the years shown prior to 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. The MER on a non-annualized basis is 0.13%. 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. The portfolio turnover is expressed as a non-annualized percentage.

6 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 returns 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 six-month period ended June 30, 2017, and each of the previous twelve-month periods ended December 31 shown, unless otherwise noted. 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 (%) * 2017 * Return from the period from December 19, 2016 to December 31, 2016 (not annualized).

7 Summary of Investment Portfolio As at June 30, 2017 Portfolio Allocation All Long Positions % of Net Asset Value Issuer % of Net Asset Value Long Positions Cash 12.3 Oil and Gas Equipment and Services 61.6 ProPetro Holding Corp Oil and Gas Exploration and Production 22.7 Trican Well Service Ltd Oil and Gas Drilling 3.9 US Silica Holdings Inc Total Long Positions 88.2 Parsley Energy Inc. 9.3 Cash 12.3 Hi-Crush Partners LP 9.1 Other Net Liabilities (0.5) WPX Energy Inc. 7.0 Total Net Asset Value Callon Petroleum Co. 6.4 Smart Sand Inc. 5.4 C&J Energy Services Inc. 5.0 Fairmount Santrol Holdings Inc. 4.7 Patterson-UTI Energy Inc. 3.9 Source Energy Services Ltd. 2.8 Keane Group Inc. 1.9 All long positions as a percentage of net asset value The Fund held no short positions as at June 30, 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

8 Corporate Information Corporate Address Sprott Asset Management 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@sprott.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 McCarthy Tetrault LLP TD Bank Tower 66 Wellington Street West Toronto ON M5K 1E6 M 03 E