Energy Semi Annual Energy Hedge Fund

7/28/2019 Energy Semi Annual Energy Hedge Fund

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SIMM Energy Hedge FundAnnual Report

As of October 26, 2012

This report is to be presented to the SIMM Advisory Board on Friday November 2, 2012 and distributed to interested

University members, Community members, and any other interest parties.

ST. BONAVENTURE UNIVERSITY STUDENTS IN MONEY MANAGEMENT


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SIMM Energy Hedge Fund Page 1

This report is for informational purposes only and does not constitute an offer to sell or a solicitation of anoffer to buy any security nor is it intended to provide investment advice. There is no guarantee that the energy fund

will have a return on invested capital similar to other accounts managed by SIMM. The fact that other accounts

managed by SIMM have realized gains in the past is not an indication that the energy fund will realize any gains in

the future. Prior performance is not indicative of future results.

An investment in the energy fund is speculative and involves risk of loss of invested capital. There can be no

assurance that the performance objectives of the energy fund will be achieved. The investment program utilized by

the energy fund is subject to significant risks including risks from the use of short sales and leverage. Prospectiveinvestors are urged to review the energy funds investment objectives and understand the risk of loss associated,

and consult with financial, legal and tax advisors prior to investing in the energy fund. Performance results shown

are presented on a before fee basis and are broken down into Net Asset Value (NAV) and cost basis return. An

individual investors return may vary from these returns based on different management fee and incentive

arrangements, and the timing of capital transactions. The statistical data regarding the indices has been obtained

from BLOOMBERG PROFESSIONAL SERVICE and the returns are calculated assuming all dividends are

reinvested. The indices are not subject to any of the fees or expenses to which the funds are subject.

This presentation is being provided to you on a confidential basis and is intended solely for the information

of the people to whom it is being presented. This presentation is intended solely to assist you in deciding whether

or not to proceed with a further investigation of the SIMM Energy Hedge Fund. Accordingly, this presentation may

not be reported in whole or in part, and may not be delivered to any person without prior written consent of the

SIMM Energy Hedge Fund.

Disclosure


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Investment Objective_________________________________________________________________________p3

Energy Trends and Events___________________________________________________________________p4-5

Energy Market Outlook_____________________________________________________________________p6-7

Our Focus__________________________________________________________________________________p8

Closed Positions__________________________________________________________________________p9-11

Open Positions_____________________________________________________________________________p12

Fund Performance__________________________________________________________________________p13

Cumulative Return Comparison________________________________________________________________p14

Updates________________________________________________________________________________p15-21

Risk Management Guidelines_________________________________________________________________p22

Management Team__________________________________________________________________________p23

Biographies_____________________________________________________________________________p24-25

Table of Contents


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Preservation of CapitalGenerate returns to investors that exceed:

The annual historical return of the S&P 500 The performance of the SPDR Energy ETF (XLE)

Assuming no leverage, expected annual net returns to investors of 8% - 9%The Fund requires on an annual basis, the following fee structure:Two (2) percent of assets under management (AUM). These are to assist in the day-to-day operations of the

fund which include, but are not limited to:

Trading Costs Reorganization Costs Costs of Reporting

Twenty (20) percent of gains (realized or unrealized)There is no minimum investmentPrime Broker: Interactive BrokersRedemption: Quarterly with 60 days noticeAUM as of Close 10/26/12: $262,560.60

Investment Objective and Compensation Terms


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Beginning with the first half of our fiscal year, there have been numerous significant and historicalmacroeconomic events that have dictated the progress of the world economy as it struggles to grow after the worst

financial crisis since the Great Depression. The energy sector is cyclical, which does well during good economic

periods and underperforms during an economic slowdown.

The Eurozone debt crisis has dominated the news with positive, negative, and speculative announcements

determining market sentiment. There is still uncertainty for Greece, after numerous amounts of financial aid given

to the country from late spring, as well as into the summer. There were multiple elections in the country that failed

to decide on leadership, creating further instability. Fears over Spains failing economy also came to fruition asSpanish banks received a 100 billion bailout, 10 year Spanish bond yields rose to record highs, and

unemployment reached over 25%. Even Chinas seemingly unstoppable growth has slowed as GDP has dipped

below 10% per year; an average that it has maintained over the past three decades.

Growth in the U.S. has been tepid at best. The economy has grown only 1.3% in the second quarter and the

unemployment rate is still high despite dropping near a four year low of 7.8% in September. To help get our

economy back on track, The Federal Reserve has pledged to keep interest rates near zero, at a rate of 0.25%

through mid-2015. They also enacted a third round of quantitate easing (QE3) through monthly open-ended buyingof $40 billion in mortgage backed securities with no announced end date.

Commodities, especially the crude oil complex, have been affected by the cyclicity in the global markets.WTI crude oil is down over 16% so far in 2012 and Brent crude oil is down over 2%. The prices of these major oilbenchmarks were heavily affected by the already mentioned global macroeconomic events. Hydraulic fracturinghas allowed for a rebirth in U.S. oil production that has created a record supply of WTI crude at its delivery pointin Cushing, OK.

Energy Trends and Events


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The combination of heavy production and difficulties transporting the commodity out of Cushing has putdownward pressure on prices and has helped the Brent-WTI spread to continue to widen. Middle East tensions

have also had an effect on prices. Iran continued to threaten to close the Strait of Hormuz, which about 20% of the

worlds oil travels through, because of nuclear sanctions.

After a decline at the beginning of the summer, which corresponded with a drop in oil prices, gasoline prices

surged this summer on supply concerns. Refinery outages throughout the U.S. and Europe kept supplies tight in

New York Harbor where RBOB futures prices reached a five-month high of $3.342 a gallon and gasoline prices in

California briefly shot up over $6 a gallon in some locations. This rapid rise in gasoline prices has helped toincrease the crack spread during the second half of the summer, improving refiner margins, and elevating our

refiner holdings.

Natural gas has also had an eventful and historic run over the past few months. The same technology that has

created a new oil boom in the U.S. has led to even larger growth in natural gas production. This growth, along with

an extremely warm winter has led to record inventory and has severely depressed the price, reaching its lowest

level in over a decade of $1.89 in April. The decrease in price has also led to a significant amount of power plants

using natural gas instead of coal during the hot summer we experienced this year.

Energy Trends and Events (Continued)


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The outlook for the global macroeconomic environment remains weak as forecasts of growth continue to beconcerning. The World Economic Outlook (WEO), which is published by The International Monetary Fund (IMF),

projected a global growth rate of just 3.3% and 3.6%, for 2012 and 2013, respectively. In the U.S., forecasts of

real Gross Domestic Product (GDP) are expected to increase by 1.7% for next year. Some of the major events that

will have a large impact on economic growth will be the geopolitics in the Middle East, the U.S. presidential

election, the continued uncertainty with the European Union, and the slowing growth of BRICS.

One of the most crucial issues facing the U.S. is the impending fiscal cliff, which may be detrimental to the

economy. The fiscal cliff would occur early in 2013 and includes: The beginning of Obama's health care tax, theend of the payroll tax cut, which would increase the payroll tax by 2%, and spending cuts, including deep cuts to

the Defense and Medicare budgets. The outcome of the fiscal cliff will weigh heavily on growth and possibly even

send the economy into another recession. Growing government debt is another concern that could potentially force

the United States to receive further credit downgrades.

The open-endedness of QE3 is also a concern. The Fed, unwilling to announce an end date for this program,

further indicates the uncertainty surrounding the U.S. economy. This also brings up concerns about inflation as

The Fed continues to freely print money without any true indication that these programs are helping grow theeconomy and create jobs. The potential of QE3 weakening the value of the dollar can temporarily inflate

commodity prices as a weak dollar makes commodities more attractive for purchase.

The price movements of the crude oil complex are uncertain and very possibly will be influenced by the

uncertainty in the global macroeconomic environment. Currently, the consumption of crude oil is expected to fall

0.5 million bbl/d as we leave the seasonal peak from the summer and enter the winter months and as there is a

Market Outlook


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reduction in demand because of the weakening global economy. The EIA expects West Texas Intermediate (WTI)

to average $93 per barrel for the remaining of 2012 and further decrease during the winter months as supply is

expected to increase due to this decreased demand. Excess supply in Cushing may slowly be reduced, leading to

rising prices, as transportation infrastructure improves. Any significant reduction in inventory could also reduce

WTIs spread with Brent. Selling at a premium, Brent Crude oil is expected to average $112 per barrel for the

remaining of 2012 and $103 per barrel in 2013. The price of Brent prices have and will remain elevated, due to

tight supplies, as seasonal refinery maintenance is still occurring. Prices should come down as refineries comeback

online in the next few months and as global demand remains weak. Gasoline prices will also be affected by the

uncertainty in the world economy. If these current negative trends continue, gasoline prices will drop as demand

continues to weaken and as the outlook of the global economy potentially gets worse. Overall, all commodities

part of the crude oil complex will see increases in price over the long term. As the global economy and population

continues to grow, consumption of oil and its products will also increase. This is very bullish for prices long term

but the current global economic outlook may weaken prices over the next six to twelve months.

The outlook for natural gas is bullish as temperatures are forecasted to be normal this winter and as less rigs

drill for the commodity. Despite forecasted temperatures expected to be 2% higher than the 30-year average,

winter temperatures are predicted to be at least 20% colder than last year. A cooler winter may increase heating

demand, which is bullish for natural gas. The supply glut will see draws in inventory as more natural gas will be

used to heat homes and businesses. Also as the rig count for the exploring and production of natural gas continues

to decline, less inventory will be replenished, keeping supplies tight.

Market Outlook (Continued)


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The Fund was founded under the principle focus of investing within the energy sector and its products. This

entails investments being made in various areas throughout the energy markets. We utilize numerous securities in

order to capitalize and generate superior returns to investors.

Futures Contracts Equities

Futures Options Equity OptionsWithin the energy sector, The Fund has had a primary focus on making investments in the traditional areas

(crude, natural gas, and natural gas liquids). We have found investments involving positions in various energy

commodities, along with companies throughout the industry. The Fund reacts to changes in the market and adapts

to trends by taking both long and short positions.

Moving forward, we reserve the right to invest in other products not stated in our current investment focus.

Our Focus


10/27


Name Ticker SecurityTradeDate

SettlementDate

CloseDate Position

AverageCost Total Cost

ClosingPrice

Total ClosingCost Realized P&L

Chesapeake

Put CHK, 2012, 04/20, 21 StrikeEquity

Option 11/30/2011 4/20/2012 4/12/2012 long 2 (1.60) (320.04) 0.67 134.00 (187.20)

Chesapeake

Call CHK, 2012, 04/20, 26 StrikeEquityOption 11/30/2011 4/20/2012 4/20/2012 short (2) 2.29 457.95 0.00 0.00 457.95

WTI Crude

Oil CL, 2012, 12 Futures 11/9/2011 11/16/2012 4/17/2012 long 1 (94.07) (94,072.32) 104.66 104,660.00 10,585.36

TSO Equity TSO Stock 1/9/2012 N/A Open long 318 (22.64) (12,001.32) 1,927.17

HFC Equity HFC Stock 1/9/2012 N/A Open long 227 (26.50) (12,006.32) 3,031.87

CHK Equity CHK Stock 1/31/2012 N/A 10/3/2012 short 0 19.64 19,637.50 2,828.50

LNG Equity LNG Stock 1/31/2012 N/A Open long 674 (12.90) (17,512.08) 3,483.30Brent Crude

Oil COIL, 2012, 08 Futures 2/29/2012 7/16/2012 4/17/2012 long 2 (119.85) (239,704.80) 117.57 235,140.00 (4,569.60)

Brent Crude

Oil COIL, 2013, 06 Futures 2/29/2012 5/16/2013 4/17/2012 short (1) 113.07 113,067.60 112.41 (112,410.00) 655.20

WTI Crude

Oil Put CL MAY12 101.5 PFuturesOption 3/21/2012 4/17/2012 4/17/2012 short (8) 0.90 7,181.44 0.00 7,181.44

USO ETF Put USO 19MAY12 38.0 PEquityOption 3/21/2012 5/19/2012 4/18/2012 long 30 (0.72) (2,151.73) 0.71 2,130.00 (34.52)

Natural Gas NG, 2012, 05 Futures 4/4/2012 4/26/2012 4/25/2012 long 3 (2.14) (64,236.96) 2.08 62,430.00 (1,813.92)

Natural Gas NG, 2012, 05 Futures 4/4/2012 4/26/2012 4/4/2012 long 3 (2.13) (64,043.04) 2.14 (64,156.96) (113.92)

Natural Gas NG, 2012, 06 Futures 4/4/2012 5/29/2012 5/17/2012 short (3) 2.26 67,933.04 2.53 (75,930.00) (8,003.92)Brent Crude

Oil COIL, 2012, 08 Futures 4/17/2012 7/16/2012 7/5/2012 short (2) 117.56 235,115.20 102.01 (204,020.00) 31,090.40

Brent Crude

Oil COIL, 2013, 06 Futures 4/17/2012 5/16/2013 6/20/2012 long 2 (112.43) (224,864.80) 93.80 187,600.00 (37,269.60)

WTI Crude

Oil CL, 2012, 12 Futures 4/17/2012 11/16/2012 7/10/2012 short (2) (104.66) 209,315.36 86.98 (173,960.00) 35,350.72WTI Crude

Oil CL, 2012, 07 Futures 4/17/2012 6/20/2012 5/8/2012 long 2 103.84 (207,674.64) 96.98 193,950.00 (13,729.28)

Closed Positions


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SettlementDate

CloseDate Position

AverageCost Total Cost

ClosingPrice

Total ClosingCost

RealizedP&L

WTI Crude Oil

Call CL Aug12 98 Call Futures Option 5/8/2012 N/A 7/9/2012 long 2 4.38 (8,764.64) 0.03 60.00 (8,709.28)

Natural Gas Call NG JUN12 2.4 Call Futures Option 4/25/2012 5/25/2012 5/17/2012 short (3) 0.05 1,463.04 0.17 (5,010.00) (3,553.92)

Natural Gas Call NG JUN12 2.45 Call Futures Option 4/25/2012 5/25/2012 5/24/2012 long 3 0.05 (1,566.96) 0.25 7,380.00 5,806.08

Natural Gas NG Jul12 Futures 6/5/2012 6/27/2012 6/26/2012 long 3 2.45 (73,436.96) 2.74 82,230.00 8,786.08

Natural Gas Put NG Jul12 2.35 Put Futures Option 6/5/2012 6/26/2012 6/26/2012 short (3) 0.07 2,153.04 0.00 (30.00) 2,116.08

Natural Gas Put NG Jul12 2.30 Put Futures Option 6/5/2012 6/26/2012 6/26/2012 long 3 0.07 (2,196.96) 0.00 0.00 (2,196.96)

RBOB RB Sep12 Futures 7/2/2012 8/31/2012 7/13/2012 short (1) 2.52 105,690.68 2.68 112,417.20 (6,728.84)

RBOB Call RB Sep12 254 Call Futures Option 7/2/2012 8/28/2012 8/28/2012 short (1) 0.09 (3,987.69) 0.00 0.00 (2.32)

RBOB Call RB Sep12 264 Call Futures Option 7/2/2012 8/28/2012 8/28/2012 long 1 0.07 (3,030.51) 0.00 0.00 (2.32)

RBOB RB Sep12ExercisedFuture 8/28/2012 8/28/2012 8/28/2012 short (1) 2.63 110,667.69 (2.54) (106,680.00) (3,242.84)

Brent Crude Oil COIL Oct12 (COILV2) Futures 7/8/2012 9/13/2012 8/22/2012 long 2 98.18 (196,364.80) 115.17 230,340.00 33,970.40

Brent Crude Oil COIL Jan13 (COILF3) Futures 7/8/2012 12/14/2012 8/22/2012 short (2) 97.90 195,795.20 113.75 (227,500.00) (31,709.60)

WTI Crude Oil CL Sep12 (CLU2) Futures 7/10/2012 8/21/2012 7/25/2012 long 2 84.56 (169,124.64) 87.22 174,440.00 5,310.72

WTI Crude Oil CL Jul13 (CLN3) Futures 7/10/2012 6/20/2013 7/25/2012 short (2) 87.34 174,685.36 90.72 (181,440.00) (6,759.28)

WTI Crude Oil

Call CL Sep12 84 Call Futures Option 7/10/2012 8/16/2012 7/17/2012 long 2 4.51 (9,014.64) 6.13 12,255.36 3,240.72

WTI Crude Oil

Put CL Sep12 84 Put Futures Option 7/10/2012 8/17/2012 7/17/2012 long 2 3.58 (7,164.64) 1.38 2,755.36 (4,409.28)

RBOB RB Sep12 Futures 7/17/2012 8/31/2012 7/25/2012 long 1 2.74 (115,052.92) 2.67 112,295.40 (2,759.84)

Closed Positions


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Name Ticker Security

Trade

Date

Settlement

Date Close Date Position

Average

Cost Total Cost Closing Price

Total Closing

Cost

Realized

P&L

Natural Gas NG Oct12 Futures 9/4/2012 9/26/2012 9/26/2012 short (2) 2.87 57,300.00 2.97 (59,350.00) (2,059.28)

Natural Gas NG Feb13 Futures 9/4/2012 1/29/2013 9/26/2012 long 2 3.41 (68,200.00) 3.62 72,460.00 4,250.72

Natural Gas NG Nov12 Futures 9/26/2012 10/29/2012 10/12/2012 short (2) 3.17 63,355.36 3.57 (71,440.00) (8,089.28)

Natural Gas NG Mar13 Futures 9/26/2012 2/26/2013 10/12/2012 long 2 3.60 (72,044.64) 3.94 78,870.00 6,820.72

RBOB RB Nov12 Futures 10/10/2012 10/31/2012 10/18/2012 long 1 2.96 (124,255.12) 2.72 114,076.20 (10,181.24)

RBOB RB Dec12 Futures 10/10/2012 10/31/2012 10/18/2012 short (1) 2.83 118,895.48 2.71 (114,000.60) 4,892.56

*Current Prices as of October 26, 2012

Total Realized P&L

$ 17,091.82

Closed Positions


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SettlementDate Position Average Cost Total Cost Current Price Market Value Unrealized P&L

TSO Equity TSO Stock 40,917.00 N/A long 318.00 (22.64) (7,200.79) 38.35 12,195.30 4,994.51

HFC Equity HFC Stock 40,917.00 N/A long 227.00 (26.50) (6,016.41) 38.89 8,828.03 2,811.96

LNG Equity LNG Stock 40,939.00 N/A long 674.00 (12.90) (8,697.97) 16.00 10,784.00 2,086.03

XOM XOM Stock 40,995.00 N/A long 116.00 (86.84) (10,073.28) 90.62 10,511.92 438.64

PXD Equity PXD Stock 41,004.00 N/A long 168.00 (110.61) (18,582.80) 103.63 17,409.84 (1,172.96)

XLE Equity

ETF XLE ETF 41,004.00 N/A short (366.00) 70.85 25,929.57 71.96 (26,337.36) (407.79)

VLO Equity VLO Stock 41,122.00 N/A long 356.00 (27.40) (9,756.13) 29.03 10,334.68 578.58

Natural Gas

NG

Jan13 Futures 41,205.00 41,270.00 long 2.00 3.98 (79,524.64) 3.86 77,100.00 (2,424.64)

Natural Gas

NG

Apr13 Futures 41,205.00 41,359.00 short (2.00) 3.90 78,015.36 3.81 (76,120.00) 1,895.36

*Current Prices as of October 26, 2012

Total Realized P&L

$ 8,799.69

Open Positions


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SIMM Energy Hedge Fund (April 2, 2012 - Present) *Returns exclude transaction costs*

Total Return Since Inception 5.15%

Annualized Return 5.01%

Year-To-Date Return 5.04%

Sharpe Ratio 0.54%

Sortino Ratio 0.41%

Standard Deviation 1.57%

Fund Performance


15/27


Cumulative Returns from 04/02/12 - 10/26/12 XLE SPX U839136

*** U839136 is the Energy Fund

0.32% 0.25% 5.04%

Cumulative Return Comparison


16/27


Review:

Crude oil is down over 17% from the beginning of April with its yearly highs being achieved during the

middle of the prior month. Strong political tensions, along with increases in supply and demand at 16-year lows,

have put downward pressure on the price of crude oil. We have seen slowing global growth, particularly in China

as their Purchasing Manager's Index (PMI) has dipped below 50, the first occurrence since early 2009. This is a

clear sign of possible contraction in the manufacturing sector, which is correlated with the price of oil. We have

also noticed oil prices and Gross Domestic Product positively correlated throughout the year. As our GDP declined

throughout the year below two percent, we began to see a large drop off in oil. Data from the Energy Informationadministration (EIA) shows that recently we have had large builds in supply, driving the price lower. Supplies in

Cushing, OK have reached a record high this June of nearly 48 million barrels. Since the reversal of the Seaway

Pipeline earlier in the year, which has enabled the transport of excess crude supply, we have seen Cushing stocks

go down slightly for the past four months, now currently at 44 million barrels. We have also seen the Brent/WTI

spread nearly double since April 1st. Brent is trading at a nearly $24 premium to WTI as of the end of October

2012, which is due to the increased supply in Cushing.

Crude Oil Update


17/27


Forecast:

Prices of oil will continue to be relatively high as a slow economic recovery across the world increases

consumption. Also, unrest in the Middle East will continue to push oil prices up. SIMM Energy will closely follow

the markets into the presidential election as well as 2013. As emerging markets look to improve their standard of

living, energy consumption of all kinds will continue to increase dramatically. We will look to increase our

international exposure in crude oil exploration, with these being strong long-term plays on earnings per share, price

to earnings, and a dividend basis. We believe that Cushing stocks will eventually come off record high levels as

new technological innovation will get the excess supply out, possibly increasing demand while driving down oilprices. The WTI/Brent spread will come off of its highest levels in the near future as well, and we will see WTI

prices rise to catch up with Brent.

Crude Oil Update (Continued)


18/27


Current Holdings:

January 2013 Natural Gas, April 2013 Natural Gas

Review:

With the abnormally mild winter in the beginning of 2012, residential and commercial natural gas

consumption decreased dramatically helping to build an already growing inventory. By the end of April, working

inventories were at 2,576 Bcf which is 857 Bcf or almost 50% greater than the 5-year average for that time of year.

These record inventories helped pushed its price down to its lowest level in over a decade of $1.89.

These depressed prices made natural gas an attractive option to use as fuel for power plants. Plants with the

capacity to switch from coal power to natural gas made this change to take advantage of such low prices. A record

setting summer, being the hottest on record in 50 years, created extreme cooling demand. This also creates a

demand for electricity as air conditions are often used during warm weather. The consistently hot summer created

a high amount of cooling demand which pushed prices upwards over 70% from their low in April as more power

plants used natural gas for electricity generation over coal. This has led to consumption of natural gas in the

electric power sector averaging 22% higher than 2011 levels.

Hurricane Isaac, a category 1 hurricane, which struck the U.S. coast in the Gulf of Mexico in September,

also affected the price of natural gas. The Gulf is important for natural gas production and processing, as 30% of

the processing plant capacity is located there. The threat of the hurricane sent 72% of this capacity offline raising

prices as weekly supply surpluses fell below their 5-year averages.

Natural Gas Update


19/27


Forecast:

Over the next few months, we expect to have a cooler winter than last year, which should send natural gas

prices upwards. The National Oceanic and Atmospheric Administration (NOAA) projected that the Northeast,

Midwest, and the South will experience temperatures 2% higher than the 30-year average. Despite this, winter

temperatures will be about 20%-27% colder than last year. Cooler temperatures should increase heating demand,

drawing down stocks, and increasing gas prices.

Furthermore, rig count for natural gas production in the United States is at 427 versus last years 927. The

reduction in rigs drilling for the gas is due to the abundant amount of production form liquids rich shale plays such

as the Eagle Ford and Marcellus shale. This decrease in rigs should also produce less inventory, tightening

supplies, sending price upwards.

It is also important to note that working inventory levels are at 3,843 Bcf, well above the 5-year average of

3,592 Bcf. We believe that the current level of working inventory is depressing the price and this is most likely

only a short-term phenomenon. Going forward, we expect cooler temperatures to increase demand for heating

households and with a major reduction in rig count, the process of replenishing inventory will take longer as well.

As a result, we believe the price of natural gas will continue to increase over the next few months.

Natural Gas Update (Continued)


20/27


Current Holdings:

Cheniere Energy Inc. (LNG), Energy Select Sector SPDR (XLE), Exxon Mobil Corp. (XOM) HollyFrontier Corp.

(HFC), Pioneer Natural Resources (PXD), Tesoro Corp. (TSO), and Valero Energy Corp. (VLO)

Review:

Throughout our fiscal year, our equity positions have outperformed the market. Our positions have an

average annualized return of 29.60%, outperforming the S&P, which returned 0.25% over this same period. The

top performers were our refinery stocks due to increased profit margins over the summer. The front month WTI

and RBOB crack spread has increased 23% when compared to this time last year. The increase in oil and gas

prices over this summer has widened the spread, making refiners more profitable.

The largest gainer in our portfolio was Tesoro Corp (TSO), which had an annualized return of 92.34%.

Strong earnings in Q2 led Tesoro to beat analyst estimates by $0.63. The company also announced during earnings

that they are purchasing BPs Carson refinery in California. This gives the company a 23% market share in that

state. This larger market share may also allow them to profit off of the fire at Chevrons Richmond refinery, which

may be offline for almost a year.

The next leading equity in our portfolio is HollyFrontier Corp. (HFC) with a 60.97% annualized return.

They also posted positive Q2 earnings, which beat estimates by $0.14. HFC has benefitted from the cheap price of

WTI, which is down 13% this year. The company also raised its regular dividend 50% while also giving a special

dividend during the summer and in early fall of $0.50.

Equities Update


21/27


Valero Energy Corporation (VLO) has posted an annualized return of 26.65%. The company has also

greatly benefitted from the general decline in oil prices and improvement in the crack spread over the past few

months. The company reported better than expected Q2 earnings of $1.50 a share, beating analyst estimates by

$0.07 and they also raised their dividend 2.5 cents. Other positive news for Valero included the announcement that

they plan to spin of their retail business that may be valued at $3.5 billion.

Pioneer Natural Resources (PXD) has a -10.5% annualized return in our portfolio. The company failed to

meet their Q2 earnings estimate by $0.20, but did well in revenue, beating estimates by 2.4% and was up 14.8%

year over year. Helping to give the stock a small boost, this past September, the company announced it would

begin to divest some of its holdings in the liquid-rich Barnett Shale play.

We also closed our position in Chesapeake Energy Corp. (CHK) profiting $2,829. We were originally short

the company due to controversy stemming from CEO Aubrey McClendon. We decided to exit the position after

the stock rose over 3% after activist investor Carl Ichan bought a significant stake in the company and as the price

of natural gas rose due to the hottest summer in over 50 years as the companys core business is natural gas

production.

ExxonMobil is currently the only oil and gas supermajor we own. The company had an annualized gain of

7.43% in our portfolio. The companys return has been below average for the sector due to its large exposure to

natural gas. ExxonMobil has been increasing natural gas production in the U.S., as they believe that demand will

increase in the coming years. This has exposed XOM to record low natural gas prices, which are down 40% over

the past two years. As prices have risen this summer, and holdings in the oil rich Bakken shale have increased, we

have seen a greater amount of equity flow into the company.

Equities Update (Continued)


22/27


Cheniere Energy (LNG) has had a 33.30% annualized return since our initial purchase. They have gained a

significant competitive advantage by being the only company to gain conditional approval to export liquefied

natural gas from the Federal Energy Regulatory Commission. Because of the high costs of building the Sabine

Pass liquefied natural gas train, the company has struggled to make earnings, missing Q2 earnings with a $0.34 per

share loss. Despite this, they began to make deals to export LNG including a 20-year deal with GAIL, India's

largest gas transmission company to export 3.5 million tons LNG per year.

Our short position in the Energy Select Sector SDPR ETF (XLE) currently has a negative annualized return

of -2.78%. We are currently using the ETF as a general hedge for our long equity positions.

Forecast:

The uncertainty in the global macroeconomic environment gives us an unclear picture of price direction for

our commodities, which greatly affects our holdings. For the crude oil complex, this uncertainty makes it difficult

to determine where the price of oil is heading and could make it difficult for refiners to retain such high margins.

Also, the abundant supply and record production of natural gas has depressed the price, making it difficult to profit

from. We hope companies such as Cheniere will gain full permission to export natural gas, driving up their share

price and allowing for greater profits. We do caution that they have still not received full approval and without it,

this could be detrimental to their gross margins. The Federal Government is currently conducting a study to see the

economic impact of exporting natural gas and will give a final decision when the study is concluded at the end of

2013.

Equities Update (Continued)


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Before each trade is implemented, all the possible foreseen risks involved must be presented and discussedwith management. A formal trade proposal must be put in writing as to have a record of the initial justification andrisks associated with the trade. This also allows us to review trades and critique them based on new informationand changes in the market.

Each position is monitored on a daily basis and is adjusted accordingly. Each analyst is assigned a position

to monitor and is to report to upper management on a weekly basis.

Positions limits include:No equity position can make up more than 20% of the portfolio Futures contracts initial maintenance margin cannot exceed 50% of the total portfolio value

Despite our ability to lever our portfolio through Interactive Brokers (4.5x), management has decided the

risk/reward mix is not essential at this time.

Management advises that all speculative positions consider a corresponding hedge position.

Risk Management Guidelines


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Management Team

Peter Eller

Crude Oil Analyst

Neil Scheible

Equity Analyst

Dan Gasapo

Equity Analyst

Chris Matthews

Natural Gas Analyst

Vasile Tivadar

Co-Portfolio Manager

Jeremy Tranzillo

Co-Portfolio Manager

Arkan Razi

Gasoline Analyst

Tom Montemage

Equity Analyst


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Jeremy Tranzillo Energy Hedge Fund Co-Portfolio Manager, May 2012Present Head of Fixed Income, January 2012May 2012 M.B.A. St. Bonaventure University, May 2013 B.A. Psychology, SUNY Geneseo, December 2006

Vasile Tivadar Energy Hedge Fund, Co-Portfolio Manager, May 2012Present Energy Hedge Fund, Geopolitical Analyst, January 2012May 2012

Fixed Income Sector, Research Associate, January 2012May 2012 Risk Management, Research Analyst, January 2012May 2012 Industrial Sector, Research Analyst, September 2011December 2011 B.B.A. Accounting and Finance, St. Bonaventure University 2013

Peter Eller Energy Hedge Fund, Oil Analyst, August 2012 - Present Social Media Operations, Associate, August 2012 - Present Long Fund, General Analyst, January 2012 - May 2012 B.B.A. Finance, St. Bonaventure University May 2014

Neil Scheible Energy Hedge Fund, Equity Analyst, August 2012 - Present MicroFinance, Fund Member, September 2012 - Present B.B.A. Management Finance, St. Bonaventure University, 2012 B.B.A. Finance, St. Bonaventure University 2013

Biographies


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Chris Matthews

Energy Hedge Fund, Natural Gas Analyst, August 2012 - Present Long Fund, Consumer Discretionary, Analyst, August 2011 -December 2011 B.B.A. Finance, St. Bonaventure University 2013

Dan Gasapo

Energy Hedge Fund, Equity Analyst, August 2012Present Consumer Discretionary, Analyst, January 2012May 2012 B.B.A. Finance & Minor in Economics, St. Bonaventure

University 2013

Arkan Razi Energy Hedge Fund, Gasoline Analyst, August 2012 - Present

B.B.A. Finance, St. Bonaventure University 2014

Tom Montemage

Energy Hedge Fund, Equity Analyst, August 2012 - Present M.B.A. St. Bonaventure University December 2012 B.S. Business Administration, May 2008 Passed Level I Exam of the CFA Program

Biographies


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Thank you for taking the time to read our Semi-Annual report.For more information refer to our website www.BonaSIMM.org If you have any questions or recommendations please contact the following individuals:

Jeremy Tranzillo: [email protected] Vasile Tivadar: [email protected] Also follow us on Twittter @SIMMEnergyFund

Energy Semi Annual Energy Hedge Fund

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Transcript of Energy Semi Annual Energy Hedge Fund