Sprott undergoes a makeover

SAM is the arm that manages the parent company’s mutual funds and hedge funds, as well as private-client and institutional accounts. One of Wilson’s key goals is to “get back on a growth trajectory again.

“We would like to see a meaningful change in the perception of what we’re about today and what we have to offer,” says Wilson. “Current perception is a little out of date. There are a lot of new products on our shelf. We are innovating and adding new flavours.”

Since Wilson came on board in early 2012 from money manager Cumberland Private Wealth Management Inc. of Toronto, assets under management (AUM)in the Enhanced lineup have grown rapidly, with Sprott Enhanced Equity Fund holding about $700 million in AUM; it is the firm’s largest fund. The Enhanced family also includes Sprott Enhanced Long-Short Equity and Sprott Enhanced Balanced portfolios.

Rather than taking what Wilson calls the “high torque” approach that SAM was known for in the past, the Enhanced lineup is focusing on absolute returns and downside protection. The funds concentrate on North American securities and make use of defensive strategies, such as investing in put options that increase in value when the market declines, or selling covered call options to increase income. These strategies may come with a cost, but they are designed to lower volatility and preserve capital.

“When bad things happen in the market, and they might, we are likely to take smaller losses rather than large ones,” Wilson says. “Many clients want to be in the stock market. But, since 2008, they want to manage the level of risk and allocate a portion of their portfolios to products that reduce the downside.”

Rather than being a mutual fund department store, similar to bank-owned firms and the industry giants, SAM is carefully targeting the areas in which it can provide specialized expertise. Says Wilson: “We want to be a specialized supermarket of things you can’t get anywhere else, and we have a range of things that are different.”

For example, in the fixed-income area, SAM is making a “footprint ” in alternative income products that go beyond bonds and dividend-paying stocks. An example is the new Sprott Bridging Income Fund LP, a financing vehicle that generates income for clients by purchasing receivables from companies and collecting on them.

Other alternative income products include vehicles for investing in convertible strategies and private credit.

“We are broadening rather than redirecting,” Wilson says. “We haven’t abandoned our roots in precious metals and resources generally, but now have a broader focus. We provide value that can’t be found in plain-vanilla products.”

A key area of differentiation for SAM is its lineup of funds focusing on hard assets. The firm has introduced several sector funds, including global agriculture, global infrastructure, precious metals and timber, as well as Sprott Real Asset Class Fund, a diversified fund that covers all the bases.

These funds complement SAM’s physical bullion trusts, closed-end funds investing in gold, silver and platinum bullion. About $3.3 billion (44%) of SAM’s $7.4 billion in AUM is held in these physical bullion trusts. Outside of the bullion trusts, about 60% of SAM’s actively managed assets are in non-resources funds, up from 27% two years ago.

Although the firm has come a long way in reducing its dependency on resources, the sector is still highly influential in SAM’s – and the parent company’s – fortunes.

“Sprott continues to have a large exposure to gold through physical bullion trusts, and it also has exposure through equities in some of its older funds,” says Rudy Luukko, investment funds and personal finance editor at Morningstar Canada in Toronto. “Sprott has a history of investing with conviction; but, due to a heavy orientation to resources, its asset growth and performance have suffered.”

At a time when the mutual fund and exchange-traded fund (ETF) industry have enjoyed robust growth, SAM has languished, Luukko says. As of Sept. 30, 2014, its AUM of $7.36 billion was only a shade ahead of $7.34 billion a year earlier, and down sharply from $10 billion in 2012.

Even some of SAM’s new products depend upon a revival in resources-based commodities. SAM entered the mushrooming ETF market in 2014 by launching Sprott Gold Miners ETF on the New York Stock Exchange, and Wilson expects that SAM will launch more ETFs similarly modelled on “intelligent,” factor-based strategies rather than on traditional market capitalization indices.

SAM is looking internationally as well as in Canada in its quest for new clients.

“We’ll continue to do our best job in resources until commodity prices come back. And we’re optimistic, given the long-term potential of the global economy,” Wilson says. “Much of the interest in resources is international and institutional; there are longer-term thinkers outside North America that want to own harder assets rather than paper.”

SAM recently acquired new fund portfolio managers with diversified expertise, including James Bowen and Jon Wiesblatt (previously long/short equities portfolio managers with Toronto-based hedge fund JC Clark Ltd.), who are contributing to the portfolio management of Sprott Canadian Equity Fund, also managed by Eric Sprott.

This once high-flying flagship fund shows a disappointing average annual return of minus 10.3% for the five years ended Nov. 30, 2014, and minus 1.9% for the 10-year period ended Nov. 30.

In addition, by March, U.S.-based veteran fund portfolio manager Whitney George is expected to join the SAM team. George previously held senior roles in building New York-based Royce & Associates LLC into an asset-management giant in the U.S.

Based in New York, George will develop SAM’s U.S. and international businesses, and will continue to manage US$285 million in two funds to be transferred from Royce; required approvals are pending.IE

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