The protracted bear market for commodities has forced the fund to diversify its investments and shift focus away from the resource sector, where it profited so substantially during the bull market of the 2000s.
Company chief executive John Wilson, who was brought on in 2012 to help lead the shift, says more than 80 per cent of the company’s actively managed business is not related to resources at all today, compared with only about a quarter in 2012.
In an interview, Mr. Wilson said that Sprott actually started as a small cap investment firm and saw big gains on non-resource plays such as Taser International Inc., but the commodity bull market pushed the firm more into resources.
“The firm grew incredibly quickly through there and grew this reputation as a resource manager, but at its core that’s not necessarily what it was about. It’s just that’s what worked, and that’s what people wanted to put money in.”
But the resource reputation has stuck, helped in part by founder Eric Sprott’s affinity for gold, and Mr. Wilson said that the company determined from a recent survey that 70 per cent of Canadian fund managers still think of Sprott as only focused on gold and resources.
And so Sprott Asset Management, the biggest component of the Sprott Inc.
Mr. Wilson said precious metals, mining, and energy have “all been hit incredibly hard,” and he doesn’t see a turnaround soon as the fast growth in emerging markets that drove the commodity boom shows a lot of stress.
“Those growth rates are clearly decelerating pretty rapidly, and so over the near term, it doesn’t look particularly compelling, and the price action is telling that,” he said.
As the commodity cycle wound down, Sprott Asset Management started shifting into new areas of investment and is now more involved in fixed income, blue-chip equity investments, and real asset investing outside of resources.
But despite the diversification, Sprott is still a big name in precious metals, in part as a major player in physical gold investments.
And Sprott Asset Management is currently pursuing a hostile takeover of Central GoldTrust and Silver Bullion Trust to increase its stake in the physical gold business.
If the company is successful in its all-share US$898 million offer, the firm plans to merge the two businesses with its own precious metals holding companies, the Sprott Physical Gold and Silver Trusts.
Wilson said he thinks Sprott can do a better job of managing Central GoldTrust and Silver Bullion Trust.
“Sometimes when you’re the biggest in an asset class, and in precious metals we are, it is incumbent on you to clean up the space,” said Wilson.
The deal is anything but certain, with Sprott already extending the deadline for its offer twice, the latest of which ends on Friday.
- Source, Globe and Mail