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Star manager gets fresh start with new fund

Allan Jacobs has something new to offer investors, but some are critical of his fee structure


Allan Jacobs is gearing up to make a name for himself at Sprott Asset Management Inc.

Mr. Jacobs, the star manager at Sceptre Investment Counsel Ltd. who jumped ship in June, will launch a new fund on Thursday that will be similar to his Sceptre Equity Growth Fund that he ran for 14 years.

The Sprott Small Cap Equity Fund "will have the same style, but we'll be able to buy much smaller companies than we have been able to do historically," and have a heavier weighting in them, Mr. Jacobs said yesterday.

"That is a huge advantage," said Mr. Jacobs, director of small-cap investments at Toronto-based Sprott Asset Management told reporters.

Stock of companies with a market capitalization of less a $150-million, for example, could have a stronger impact on the performance of a small fund if they do well.

While the Sprott fund is able to short stocks, Mr. Jacobs said that will be a minor part of the investment focus. "We are looking for good ideas to buy on the long side," he said.

Among recent investment industry accolades, the $758-million Sceptre Equity Growth captured the 2007 Lipper Fund Award for the best Canadian small-cap fund over one, three, five and 10 years. Mr. Jacobs, 48, was named 2006 Fund Manager of the Year at the Canadian Investment Awards.

The departure of Mr. Jacobs as well as Peter Imof, who was part of the small-cap equity team at Sceptre, sent shares of Sceptre tumbling 22 per cent to $10.40 within the first two days of the announcement.

Shares of Sceptre yesterday closed at $9.97 on the Toronto Stock Exchange, up 2 cents.

Mr. Jacobs will continue to run the $32-million Sceptre Small Cap Opportunities Fund as an outside adviser for now. He also acknowledged that this fledgling hedge fund could be sold to Sprott in the future.

Fund analysts are divided as to whether Sceptre investors should follow Mr. Jacobs.

Unlike the Sceptre Equity Growth, which has a management expense ratio (MER) of 1.58 per cent, the Sprott fund will charge a management fee of 2.5 per cent plus a 10-per-cent fee if the performance exceeds the S&P/TSX Small Cap Index based on total return.

Peter Loach, a vice-president and managing director of fund research at BMO Nesbitt Burns Inc., said he would recommend investors switch to Mr. Jacobs' new fund.

"You have more opportunity for the same talent, but with a fund that has a much smaller asset base so it's much more nimble," he said. "[Mr. Jacobs] fits into the culture at Sprott, which is performance driven."

Dan Hallett, a Windsor, Ont.-based fund analyst, also suggested that Sceptre investors look for alternatives unless they would incur substantial tax costs for redeeming if they hold the fund outside a retirement savings plan.

But Mr. Hallett said he would not rush into the Sprott fund, partly because he does not like the higher 2.5-per-cent management fees.

Morningstar Canada fund analyst Mark Chow suggested that investors give Sceptre's in-house managers Matthew Baillie and Timothy Hylton a chance in taking over from Mr. Jacobs.

While Mr. Chow has been a fan of Mr. Jacobs, he too does not like the Sprott fee structure. "The base management fee at 2.5 per cent is very high considering that everyone is trying to get to 2 per cent or below."

Sceptre Equity Growth Fund

Can the performance of the new Sprott Small Cap Equity Fund emulate Allan Jacobs' old fund?

Sceptre Equity Growth Fund-A38.7%19.9%25.6%66.7%9.6%7.3%1.8%3.8%-17.6%15.0%
S&P/TSX composite index17.3%24.1%14.5%26.7%-12.4%-12.6%7.4%31.7%-1.6%15.0%
BMO small cap (weighted) index16.6%19.7%14.1%42.7%-0.9%3.4%7.3%20.3%-17.9%7.0%
S&P/TSX small cap index11.6%10.6%6.5%34.4%-3.5%4.2%n/an/an/a%n/a


© 2007 The Globe and Mail. All rights reserved.

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