TSO3 Inc (fka TSTIF)

[teq0904]

I am sure many of you will say: "but the stock price is tanking, doesn't it tell you something?" It would normally, but I have a theory on why the selling pressure has picked up in the last few days, so please hear me out.

When we look at the top holders list, we know Sprott Cdn Equity Fund owns about 3.6mm shares, or 4%. They recently (Feb15) let go of their portfolio managers of that Fund due to performance. These outgoing managers are big believers of TSO3, and put >10% of the Fund in it.

Link: https://globenewswire.com/news-release/2018/02/15/1349202/0/en/Ninepoint-Partners-LP-Announces-Changes-to-Portfolio-Manager-Line-Up.html

The Fund is put into temporary custody under another manager at Ninepoint, but the Fund will be merged into the Sprott Concentraed Cdn Equity Fund by the end of March. That fund is outsourced to Scheer, Rowlett & Associates. If you look at Scheer's other Cdn Equity Fund, you can see their focus is on large cap value names. At the very least, they do not want a 10% position in TSO3 like it was at the old Sprott fund.

Link: https://www.cclgroup.com/cclfunds/en/home/our-strategies/separately-managed-account-strategies/scheer-rowlett-canadian-equity/overview

As a result, I don't think they will want to keep the TSO3 position (or sell a big chunk of it at the very least). I have seen several of these fund mergers in my career, and the new incoming managers will actually direct the interim custodian manager of what to do during the transition--to get the portfolio into something they want, and they are price insensitive. Reason--performance is not attributed to the new manager during this transition period, only when they officially take over the fund. Furthermore, trading desks of major brokers will sometimes look at the portfolios of these transitioning funds and trade against them, if they are pretty sure the new portfolio managers will need to liquidate certain illiquid positions, like a TSO3. On the flipside, existing or potentially new shareholders could come in to clean up these blocks. But they typically want a "deal" on price.