FUNDS REPORTER
Unlike most peers in the mutual fund world, Steve Martin has been able to defy gravity in the market collapse.
The 28-year-old manager runs Creststreet Alternative Energy Fund - the top mutual fund performer last year with a 142-per-cent gain. Over the year ended Feb. 28, it is up 94 per cent.
"We are very opportunistic," says Mr. Martin, who joined Toronto-based Creststreet Asset Management Ltd. as an analyst in 2005. "We almost run it like a hedge fund."
Like a handful of rivals, his $25-million fund has regulatory approval to do limited short selling. And it charges a 20-per-cent performance fee for beating a benchmark. In his case, it's the S&P 500.
Even though his fund is billed as an alternative energy investment, Mr. Martin will short clean-energy stocks or exchange-traded funds [ETFs]if it will make money.
"Alternative energy in the pure sense was extremely unattractive for much of 2008," he said. "We do not promote the fund as being altruistic, environmental friendly or socially responsible investing."
What is your fund's mandate?
We will invest in anything that exploits an opportunity outside traditional, carbon-based-emitting sources of energy. But we have expanded the sandbox as there is just not enough names, liquidity or good opportunities to keep it narrow. But it would be at most a quarter of the portfolio so we have even invested in oil and natural gas stocks, and even small amounts of gold bullion. We have even invested in Suncor Energy. It is the largest ethanol refiner in Canada even though it is a minor part of their business.
How did you make 142 per cent last year when most funds crashed?
I don't think that [return]is sustainable given the current size of the fund. A lot of that performance was generated when the fund was less than $3-million in assets. And it was very high turnover - it was more trading than investing. What I am more comfortable with is what we have done probably in the last six months - a target closer to 25 per cent per year.
What did you invest in when the fund started in late 2007?
It was a fairly indiscriminate basket of solar names. They all just had a ton of momentum and there was a mini-bubble forming. It was very aggressive investing. We took on a lot of risk at that time, and we were fortunate.
Why did you do a lot of trading in 2008?
We were very much wary of the [credit]problems looming in the world. We didn't want to get committed to something that we couldn't sell or get out of within a couple of days. The entire [first]six months was just the end of a very large bubble. And it was no different than the tech bubble in 2000, and the last credit bubble of the early 1990s.
Where did you make money?
We were shorting uranium equities, and were long some grain ETFs like PowerSharea DB Agriculture Fund. We made very good returns from potash - not just Potash Corp. but from junior potash names like MagIndustries, and some natural gas names like Petrohawk Energy and Chesapeake Energy. We had a very speculative position in Largo Resources, which has a battery-grade vanadium deposit. I think it was a 10-per-cent position, and we made 40 per cent on it.
What about the second half of 2008?
We started to take on more short investments so the fund was more market neutral in the second half. We were short the Claymore/MAC Global Solar Energy Index ETF, as well as PowerShares WilderHill Clean Energy ETF and PowerShares Global Clean Energy Portfolio ETF. We were short solar-specific equities like Solarfun Power Holdings and Suntech Power. We were short some independent power producers like Canadian Hydro Developers and Plutonic Power. But we were long higher-yielding infrastructure plays like Great Lakes Hydro Income Fund and AltaGas Income Trust.
What about your
cash position?
We had a very large cash position for the second half of the year. It varied anywhere from at least 50- to 90-per-cent cash. We used it to trade in and out of some very highly liquid stocks, specifically, in the few days when it seemed like the world was falling apart last October. First Solar was a name that we bought once on a big capitulation day, and we sold it into a subsequent rally.
How different is your
strategy today?
The one big change is that we have started to really drill down into the fundamentals of individual companies to understand their earnings power. At the end of 2008, we finished the year with 90-per-cent cash, and now that's at 65 per cent. We have been adding about 10 per cent a month roughly. We are taking our time. I don't think the economy or the world is out of the woods yet by any stretch of the imagination.
Do you see opportunities in U.S. President Barack
Obama's plan to make
renewable energy and
climate change key to his plans?
There is a strong focus on renewable energy. But there is also a new emerging subsector that is getting a lot of focus - what we call the smart grid. It's updating the electrical transmission infrastructure. It's a big investment that needs to be made, and we are starting to identify companies that are exposed to that.
We are also going to see the implementation of some sort of carbon cap-and-trade system, and that can benefit companies positioned for that change.
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FUND MANAGER STEVE MARTIN'S TOP PICKS
RCM-TSX
Yesterday's close $23.24, up $1.48
RUGGEDCOM INC.
The maker and seller of industrial-grade routers for utility substations has strong management, can benefit from North American fiscal stimulus plans and is a potential takeover candidate, he said.
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XWE-TSX
Yesterday's close 40¢, unchanged
WORLD ENERGY SOLUTIONS INC.
The firm, which hosts online auctions for the trading of electricity contracts and carbon credits, can potentially benefit from the implementation of U.S. carbon cap-and-trade legislation in the United States, he said. "It is a speculative micro-cap play."
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ORA-NYSE
Yesterday's close $26.84 U.S., up 63¢
ORMAT TECHNOLOGIES INC.
The "undisputed market share leader in geothermal power production and equipment sales" should benefit from U.S. fiscal stimulus loan guarantees for renewable power production, he said.
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COMV-Nasdaq
$6.56 U.S., up 85¢
COMVERGE INC.
The firm sells gear to help consumers cut power use to relieve stress on electricity grids, and sells the power back to a utility. "It's not yet profitable, but has a solid cash position and are poised to experience strong sales growth resulting from subsidies targeted to utilities to improve energy efficiency," he said.