| Fund Company | Sprott Asset Management |
| Fund Type | Canadian Focused Equity |
| Rating | Not Rated |
| Style | Blend |
| Risk Level | Medium |
| Load Status | Optional |
| RRSP/RRIF Suitability | Good |
| TFSA Suitability | Good |
| Manager | John Wilson since April 2012 |
| MER | 2.44% |
| Code | SPR 430 – Front End Units
SPR 433 – DSC Units |
| Minimum Investment | $1,000 |
Analysis: The Fund is managed using the basic premise that investors can win over the long term simply by not losing. It takes on an absolute return focus where veteran manager John Wilson uses a well-defined process that involves both loss limits and a strict sell discipline, combined with a number of conservative option overlay strategies. I look at it as a “hedge fund light”.
The portfolio is concentrated, holding 25 to 30 high quality companies with a history of generating free cash flow, and a high degree of earnings predictability, that are trading at a discount to its long-term value. Mr. Wilson is constantly comparing a stock’s upside to its downside, and will only invest in those stocks where his analysis shows the upside far outweighs the downside. If no such opportunities exist, he will hold cash.
To help preserve capital, he uses an option strategy that involves put options to protect against downside, call options to provide increased upside participation, and covered call options to increase the income the fund generates.
He is benchmark agnostic, meaning the portfolio will look nothing like its benchmark. He is very defensively positioned, with no exposure to Canadian banks and minimal exposure to the highly volatile commodity sectors.
Performance has been decent, gaining nearly 11% since its launch. More impressive has been that the volatility has been about half that of the index and the downside protection has been very strong.
Given the relatively short track record of this fund, it is too early to make a definitive call on it. But the early results are definitely promising. I expect that this is the type of fund that will provide long term returns that are in the middle to upper half of the category, but with much less volatility than its peers. It should hold up well in periods of extreme market volatility, but will likely lag when markets take off. This could be a nice compliment to a more index focused fund, or could serve as a great core equity holding for those investors looking for equity exposure but aren’t comfortable with the volatility.