Small- and mid-cap resource firms have taken a beating in 2011, but asset manager Sprott Inc. refuses to turn its back on its bread and butter.
Historically, Sprott has targeted junior precious metals explorers and producers. Even though these stocks are prone to volatility, which makes it harder to predict their returns, Sprott owes them a great deal.
When the commodity bubble started expanding last September, Sprott was very bullish on the sector and that prompted investors to send its stock soaring. Before that, Sprott’s performance as a public company had been shaky, at best. After its $10 IPO in 2008, the stock had plummeted south of $5 during the financial crisis.
Yet in the past year, Sprott’s stock is up 165 per cent and now sits at $9.09 per share. On Wednesday the company also announced that it has now crossed the $10-billion threshold in assets under management, pushing it into the big leagues of asset managers.
Because Canadian investors are already tapped into Sprott’s precious metals story, the company is now looking to spread it beyond its home borders. That strategy was set in motion late last year when Sprott scooped up Global Resource Investments Ltd. and a few other U.S. asset management firms, all of which were founded by natural resource investor Rick Rule.
Peter Grosskopf, Sprott’s chief executive officer, expects that type of growth to continue. Outside of Canada, “we feel our global brand recognition has increased dramatically and what we haven’t done is take full advantage of it,” he said.
“We have relatively few international institutional clients and we’d like to grow that to be a significant portion of our business.”
But Sprott doesn’t expect a meteoric rise in assets under management from its U.S. operations because that would be inconsistent with its past. Mr. Grosskopf describes the growth of its assets under management as slow and steady.
Despite this new international focus, Sprott has some issues that must be dealt with at home. Fund performance has been dismal this year, with the flagship Sprott Hedge Fund down 15 per cent year to date and the Gold and Precious Minerals Fund down 8.8 per cent.
On top of that, there has been a shift in its fund lineup. Sprott Growth Fund, formerly run by Peter Hodson, has been shut down, after pumping out a negative 1.8-per-cent return since its inception in 2006, and a loss of 15 per cent year-to-date.
Mr. Grosskopf had little comment on the Growth Fund, noting only that “we felt like we had to make a change there to improve performance.” As for the other funds, he expects much better performances in the second half of 2011 because physical gold prices are skyrocketing but corresponding equities have yet to catch up.
A strategy to capitalize on this anomaly is still being determined by Eric Sprott, the firm’s founder, Mr. Grosskopf said. Even though rumours on Bay Street suggest Mr. Sprott has little involvement in the firm since handing the reins to Mr. Grosskopf last summer, his successor said that isn’t the case.
“It is [Eric’s] passion to analyze the world and find the best new places to invest in,” Mr. Grosskopf said. Because of that, he sets out the vision for each of the funds. Mr. Sprott, however “has very little role in the day-to-day management of the company.”
While Mr. Grosskopf talks up Sprott’s aim to grow its institutional presence, the firm certainly isn’t giving up on its retail connection. The U.S. acquisition was targeted to U.S. private wealth clients, and that operation is being re-tooled for an expansion later this year.
North of the border, retail investors have gobbled up Sprott’s Physical Silver Trust and Sprott Physical Gold Trust . The fund manager also just raised $210-million for its Strategic Fixed Income Fund because investors are craving yield.
Still, Mr. Grosskopf vows the firm will stay true to its precious metal roots. “We think it’s a great time to be a Canadian asset manager and we think it’s a great time to be in natural resources,” he said.