Ninepoint Energy Fund - a winner or not?

Pay attention to costs when choosing a fund. Pay even closer attention to its manager.

The Canadian Oil Mafia (#COM) has many members who are, as I am, big fans of Eric Nuttall’s ability to manage an energy portfolio. Eric understands oil & gas in detail, spends a lot of his time speaking with the CEO’s of energy companies, and publishes insightful reports that analyze the free cash flow of the companies he choose as places to invest his clients’ money. I enjoy seeing his analyses which are generally very accurate.

But would I let him manage my money? Not in this lifetime. First, the burden of fees and expenses is simply more than any manager can overcome through careful stock picking. In the case of Ninepoint, fund expenses total about 6.97% of the money invested according to their disclosure documents.

In 2021, that worked well for both Eric and for his clients. Ninepoint was the best performing Canadian fund. But not every year has been profitable for Eric’s clients, although I believe very year has been profitable for Eric.

Ninepoint Energy Fund has averaged a 4.61% return in the 10 years ended March 31, 2022. In the same interval, the Standard & Poor’s 500 index has risen from 1398 to 4374, a compound annual return of 11.6%. If you add the 6.97% fund expenses to the 4.61% return, you get 11.58%. Ask yourself does it makes sense to spend 60% of the return on the stocks you beneficially own to pay a manager and defray his trading and administrative costs or should you just own an index fund?

Even the best fund managers have trouble outperforming market indices, largely because their stock-picking (however good) cannot sytematically overtake the burden of the fees they charge their clients. For unsophisticated investors, investing in index ETF’s (with very low management expense ratios, often less than 0.5%) will generally produce superior results than trusting your money to a fund manager, however competent.

Having said that, if you have a burning desire to invest solely in energy stocks, can’t tell good ones from bad ones, and you need someone to help, you would be hard put to find anyone better than Eric Nuttall. The Ninepoint Energy Fund is on track for a strong year this year, likely to outperform all other funds by a wide margin. Eric is on record as saying he believes this a once in a generation opportunity to have strong returns in oil & gas investments, and I agree with him. The global energy shortage shows no signs of easing and policy makers are making the shortage worse with their ill-conceived obsession with the specious climate change rhetoric.

Investors can emulate Ninepoint by buying the same stocks listed in the top ten holdings and avoid the fees, or put their money in Eric’s hands. Either way, it is a great time to be an energy investor.