Whatever happened to the Sprott funds?
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By Dave Paterson  | Wednesday, February 06, 2019


Every month in my Top Funds Report newsletter, I write a summary of my views about specific funds and fund companies based on queries from readers. These are often funds that have undergone management changes or that are new issues, a little less well known, or not as widely covered as some of the high fliers. One of the bigger changes in the fund landscape over the past year or so was the takeover of the former high-flying Sprott funds by a management spinoff company called Ninepoint Partners. Here’s a look at a how a couple of the funds have fared.

Ninepoint International Small Cap Fund (NPP370)

The first thing that you might ask is, “What the heck is Ninepoint and where did they come from?” Well, Ninepoint Partners is the new name for the funds managed by Sprott Asset Management, which were bought out by the management group in 2017. Why “Ninepoint”? According to the company, “The Ninepoint name is derived from the ‘nine point puzzle,’ where four, continuous straight lines are used to connect all nine points of a 3x3 grid. The only way to solve the puzzle is to draw “outside the box.”

Sprott had historically been very focused on resource and commodity funds. But with the arrival of John Wilson as co-CEO of Ninepoint, it began shifting to a more alternative focus. Under the Ninepoint banner, this trend continues, as the group expands its product shelf into interesting and innovative parts of the investment universe. As a matter of interest, Ninepoint isn’t in the startup category either: It has around $3 billion in assets under management.

The International Small Cap Fund is one of their newer offerings, having debuted last March, and on the surface it may not look that interesting. But it is unique in that there aren’t that many small-cap funds that don’t invest in the U.S. market. In fact, there is only a handful of international small-cap offerings.

This fund is managed by Robert Beauregard and his team at Global Alpha, a firm founded in partnership with Connor Clark & Lunn (CC&L) in 2008, which today manages more than $1.5 billion in international and global small-cap mandates. CC&L offers a global mandate that includes U.S. small- and mid-cap stocks. The process used in the CC&L and Ninepoint funds is identical, as the manager aims to add 3% in excess return over a market cycle.

The managers use a rigorous, research-driven, bottom-up, multi-step investment process that is fundamentally-driven and looks to identify high-quality companies that can deliver earnings growth and that are trading at levels not yet recognized by the market. They also look for growth themes that can help create a tailwind for the companies. Consequently, the result is a diversified portfolio of between 50 and 70 names.

Top holdings as of Dec. 31 included communication equipment manufacturer Internet Initiative Japan Inc. (NASDAQ: IIJI), Japanese REIT Advance Residence Investment Corp. (TYO: 3269), workspace provider IWG Plc (LSE: IWG), Hong Kong-based beverage company Vitasoy International Holdings Ltd. (HKG: 345), and cosmetics firm L’Occitane International SA (HKG: 973). The top 10 holdings comprise 30% of the portfolio. Main sectors represented include 27% to industrials, 18% to consumer discretionary, 10% to real estate, and 9% to consumer staples. Geographically, the fund is allocated 29% to Japan, 15% to the U.K., and 9% to Hong Kong, with the balance distributed in other developed nations except the U.S.

While this is a new retail offering, it has been available institutionally for many years, hand has delivered very strong risk-adjusted returns that have met or exceeded the return target. This fund is worth a look for those seeking a small-cap fund that does not invest in the U.S.

Ninepoint Concentrated Canadian Equity Fund (NPP151)

Formerly the Sprott Canadian Equity Fund, which was very much a small-cap, resource-focused fund, Ninepoint replaced managers James Bowen and Jonathan Wiesblatt with Robert Dionne of Connor Clark & Lunn-owned Scheer Rowlett & Associates, which has $2.4 billion in assets under management. The fund debuted in March 2018.

The new fund name pretty much sums up the fund, which holds a concentrated portfolio of between 15 and 25 of the manager’s best Canadian equity ideas. Mr. Dionne’s active-management investment approach is very institutional in nature, and he uses a fundamental, bottom-up, value method in researching and selecting investments.

As of the end of December the fund was overweight financials at 40% of the portfolio, with materials representing 25%, and energy at 16%. Top holdings include Royal Bank Of Canada (TSX: RY), Toronto-Dominion Bank (TSX: TD), Bank Of Nova Scotia (TSX: BNS), Canadian Imperial Bank Of Commerce (TSX: CM), and Canadian Natural Resources Ltd. (TSX: CNQ).

I certainly believe this will be a much better fund with the new management team at the helm. However, until we get a few more quarters of data, I can’t really comment on its overall quality, so I am taking a wait-and-see approach on this one.

Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson’s Top Funds Report, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.

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