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Fund manager's convictions dictate strategy

Results have been weaker in recent years, KEITH DAMSELL says, but his hedge fund's success appears to back up Eric Sprott's approach

MUTUAL FUNDS REPORTER

Eric Sprott likes to hedge his bets.

It may come as a surprise to some but Mr. Sprott, one of Canada's top performing mutual fund managers, is arguably this country's best hedge fund manager too.

Sprott Asset Management Inc. oversees about $1.2-billion in retail hedge funds. That's in addition to the more than $2-billion the Toronto firm manages in retail mutual funds, including the top-ranked Sprott Canadian Equity Fund. The firm's three long-short hedge funds "are almost like a market proxy," Mr. Sprott said. "It's pretty easy for us to slip from thinking just long-only to being hedged."

The manager correctly called a secular bear market at the height of the tech bubble and in 2000, the Sprott Hedge Fund L.P. was launched as a means to "protect people in a bad stock market," the fund manager said. The long-short fund has posted an impressive 31.5-per-cent average annual return net of fees since inception. Two additional hedge funds followed in 2002 and 2004.

Sprott "is definitely a Canadian hedge fund success story," said Patrick Blessing, head of sales for global equity finance at Scotia Capital Inc., a unit of Bank of Nova Scotia. Strong performance and an ability to communicate the firm's sometimes unconventional views to investors have driven success, he said. (Scotia Capital is the prime broker for the Sprott Opportunities Hedge Fund LP.) Strong equity markets have weakened returns in recent years but Mr. Sprott is sticking with his thesis of fear and survival driving equity markets, a view that he applies to mutual and hedge fund investing. He believes the world is slowly running out of crude oil and a bull market for precious metals is in the early stages of a 20-year cycle. Sprott funds have made the most of uranium and gold stocks and his hedge funds are shorting a number of U.S. large-cap stocks.

Mr. Sprott's strong convictions lend themselves to hedge fund investing, industry marketing consultant Dan Richards said. "He makes a concentrated bet. . . . He doesn't tip-toe in to his holdings."

For Mr. Sprott, it all comes down to common sense. Hedge funds have "some pretty conservative biases. . . . I think it really works better in a bear market than a bull market," he said. "It depends on what you think is going to happen. If you are a bit bearish, I think owning a hedge fund is the best thing to do."

Sarbit fund reveals holdings

Larry Sarbit is in love with cash-rich, small-cap U.S. companies.

Mr. Sarbit, best known for his successful stint with AIC Ltd., launched Sarbit Asset Management Inc. last summer. Last week, he revealed for the first time some of the holdings in the $27-million Sarbit U.S. Equity Trust Fund.

Clear Channel Communications Inc. The media company is one of the U.S.'s largest radio and billboard operators.

DTS Inc. The digital technology firm, best known for its audio systems in movie theatres, is expected to expand into consumer products.

Collectors Universe Inc. The authenticator of high-end collectibles has a partnership with eBay Inc. and is entering the potentially lucrative diamond market.

Diamondex Resources Ltd. The exploration junior has rights to the Lena West property in the Northwest Territories.

The $27-million fund holds an additional four undisclosed U.S. stocks. About 50 per cent of assets are in cash but more investments are in the works, Mr. Sarbit said.

Altamira snags sales ace

Altamira Management Ltd. scored a coup last week when it poached James Whitman from Brandes Investment Partners & Co. Mr. Whitman, regarded as one of the country's best wholesalers, has been named senior vice-president of sales.

Brandes ended its advisory relationship with AGF Management Ltd. four years ago and quickly surpassed $4-billion in assets under management. In recent months, sales have slowed because of weak fund performance. Altamira, meanwhile, was acquired by National Bank of Canada in 2002 and has suffered many months of redemptions. Assets under management have shrunk to about $3.8-billion, down from a peak of about $6.4-billion in 1997.

Mr. Whitman will oversee Altamira's growth across its traditional direct retail sales channels, as well as the firm's developing business with financial advisers, Altamira president Charles Guay said.

"There's no big change in what we do, we're just trying to do it better," Mr. Guay said in a rare interview. "We just don't give financial advice to clients . . . we just don't take orders. We want to make sure we grow the shareholdings of the clients we have and that we have strategies in place to make sure that we generate new clients and survive long term, not to downsize but to grow."

kdamsell@globeandmail.com

© 2007 The Globe and Mail. All rights reserved.

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