TORC Oil & Gas Ltd. VREYD

TD Model Small Cap Energy Portfolio

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Canadian Small Cap Model Portfolio Energy

We are again raising our exposure to the Energy sector with the additions of Enerplus Corp. (ERF-T) at 3.0% and Tamarack Valley Energy Ltd. (TVE-T) at 2.0%. Along with our existing portfolio holdings TORC Oil & Gas Ltd. (TOG- T, portfolio weight 3.3%) and MEG Energy Corp. (MEG-T, portfolio weight 3.1%), our energy weighing increases to 11.4% versus the S&P/TSX Small Cap Index at 15.5%.

We continue to see several positive trends developing for the energy sector. We detail these trends below:

Declining U.S. Inventory Growth (Exhibits 1 and 2). Total oil and natural gas inventories (excluding SPR) are in decline and year-over-year growth is slowing. We would expect to see oil inventory levels drop below last year's levels following last year's build through Q2.

WTI Oil & Natural Gas Trading Above Consensus Estimates (Exhibits 3 and 4). As a result of the recent recovery in oil prices, WTI oil is now trading more than US$9/bbl above its forward consensus estimate. If prices stay elevated, we believe that this will pull oil assumptions higher. Consequently, energy names should see improving quantitative rankings as cashflow estimates also rise. Natural gas also recently climbed above its consensus estimate.

Backwardated Oil Markets (Exhibits 5 and 6). The backwardation (near- term contracts trading above longer-dated contracts) in both WTI and Brent oil markets continues to increase and is signalling tight supplies, in our view. However, natural gas, is trading in contango (near-term contracts trading below longer-dated contracts). We believe that a move into backwardation would be bullish for natural gas.

Strong Seasonality (Exhibits 7 and 8). The late-winter to early-spring is a strong seasonal period for WTI oil and natural gas prices. This is also the best seasonal period for the S&P/TSX Exploration & Production sub-sector.

Improving Technical Attributes (Exhibits 9 and 10). WTI oil is outperforming both copper and gold. We recently further reduced our gold position. We believe that surging oil prices will continue to lead energy equities higher versus gold equities.

We are adding positions in both Enerplus and Tamarack on their positive reversals in forward cash-flow momentum (Exhibits 11 and 12). Both names are also demonstrating relative price strength versus the S&P/TSX Exploration & Production sub-sector.