Poor investment performance and rising redemptions of fund assets at Sprott Inc. have led to a 90.2-per-cent plunge in second-quarter profit.
The quarter was "challenging for our company," Sprott's chief executive officer Peter Grosskopf acknowledged to analysts during a conference call on Thursday.
The firm "made an accurate macro call regarding the imbalances in the financial system and the prevalent weakness in the global economies, and yet our investments did not experience the gains we were expecting."
Eric Sprott, the firm's founder and architect of a strong precious metals theme in portfolios, is betting that the price of gold and silver – as stores of value – will climb as governments debase their currency by printing money to stimulate their economies. While the metals stocks have lagged their bullion peers, the firm argues that these oversold stocks are poised for a rebound.
Central banks are still expected to intervene in the markets to propel economic growth, and the firm believes that its current metals positioning, and lower volatility strategies in new funds will help performance in the second half of this year, Mr. Grosskopf said Toronto-based Sprott, meanwhile, saw profit decline to $700,000, or breakeven per share, for the latest quarter ended June 30, from $7.5-million, or 4 cents per share, a year ago.
Total revenue fell 30.2 per cent to $27.4-million in the quarter from a year earlier. Assets under management tumbled 8.7 per cent to $8.5-billion. During the second quarter, managed assets suffered from $158-million in net redemptions and $1-billion in market value deprecation.
"The shares of resource companies were hit particularly hard this quarter, while the broader equity market and bullion markets remained steady, which hurt both both our long and short positons," Mr. Grosskopf said.
"As a result, our investment performance suffered with the majority of our funds finishing in negative territory. Our recent performance issues have led to some sales challenges and have also pressured our operating margins."
Sprott's management fees have been under pressure as the firm's asset mix has been changing. Higher-fee mutual funds made up only 23 per cent of the assets under management at June 30, down from 33 per cent a year ago. Lower-fee closed-end bullion funds rose to 43 per cent of total assets from 27 per cent.