Eric Sprott Sees Net Sales in Third Quarter as Stocks Fall

Date: Thursday, September 11, 2008
Author: Frederic Tomesco, Bloomberg

Sprott Inc., the Canadian hedge fund manager that went public in May, expects to record net sales in the third quarter even as stock prices decline, Chief Executive Officer Eric Sprott said.

Toronto-based Sprott, whose mutual funds and hedge funds invest in resource and mining stocks, had C$7.7 billion ($7.2 billion) in assets under management as of June 30. The stock has dropped 51 percent since the IPO after a 15 percent decline in Canada's benchmark Standard & Poor's/TSX Composite Index.

``For the quarter, we do not have any redemptions, net net,'' Eric Sprott told investors at a Toronto conference today sponsored by Scotia Capital. ``I hope that persists, notwithstanding the incredibly difficult market conditions.''

Sprott's biggest fund is the C$2.2 billion Sprott Canadian Equity Fund, about 82 percent of which is invested in mining, energy and coal. It has returned 15 percent a year in the past five years, and is down 29 percent in 2008.

Fund manager Peter Hodson, who runs the C$289 million Sprott Growth Fund, said the firm's views on commodities mean investors are less likely to sell fund units when stock markets decline. Sprott posted net sales in July and August, he said.

``Because we are vocal in our viewpoints, when things go against us, our clients know what is happening,'' Hodson said. ``Our clients have given us money for a reason. When the markets are difficult, they tend to stay with us because they know what we are about.''

Staying the course isn't easy in ``very challenging markets,'' although the rewards can be substantial, Sprott said. The firm profited from the demise of Fannie Mae, the U.S. mortgage-finance company now run by the U.S. government, he said.

Sprott said his firm began shorting Fannie Mae stock in 2000, betting the shares would decline, at an average price of $45. He didn't say how much money the company made from the bet. The stock closed today at 74 cents.

To contact the reporter for this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net.