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Leading natural resources fund gets boost from harsh winter

What are we looking for?

Wavering commodity prices, geopolitical risk and weather have shaken up natural resource funds. We look for funds that weathered the past few years well.

The screen

We searched for the top performing natural resource equity funds for the three years to Feb. 28. U.S. dollar, segregated, pooled, alternative strategy and duplicate versions of funds were excluded.

What did we find?

A long, cold Canadian winter has led to some recent gains for energy players invested in natural gas, and one fund manager said the gains are poised to continue.

With gas storage in Alberta and the United States below five-year averages, there's some pressure to replenish those stores.

"With this ridiculously cold winter … it has actually broken down to the point where gas prices could start to look good for the next 12 months," says Rafi Tahmazian, portfolio manager for the Canoe Energy Class A fund. He says the harsh winter exceeded his best-case scenario for natural gas consumption.

The Canoe energy fund posted the best annualized gain of 13.5 per cent in the three-year period. Of the funds in the screen, this one also posted the best one-year return on 50.4 per cent. It invests primarily in Canadian oil and gas companies.

Right now, the fund is heavily leveraged to gas companies, focusing on top-quality, mid-cap names. One fundamental holding that has done well for the fund is producer Paramount Resources Ltd.

Companies providing oil and gas services could be an emerging investment opportunity, according to Mr. Tahmazian. These companies have cut costs and stand to benefit from the potential uptick in natural gas prices as producers have more capital to spend. "We're starting to dip our toes in again," he said.

The Russian conflict in Crimea would have less impact on production than a disturbance in the Middle East would, Mr. Tahmazian said. But prolonged tensions could lead to caution and austerity that would weigh on the market.

The next best performers in the screen were BMO Global Energy Class A, with a three-year annualized gain of 12.6 per cent and the Franklin Templeton Bissett Energy Corporate Class A fund, which posted gains of 10.6 per cent.

Top 15 Natural Resources Equity funds - as of Feb. 28

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