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Sprott lifts hedge fund sector

Date: Thursday, December 17, 2009
Author: Andrew Willis, The Globe and Mail

Eric Sprott's hedge funds put up great numbers in November, and changed the dynamic for the entire sector in Canada.

Scotia Capital published its monthly index on hedge fund performance late Tuesday, and it showed that Canada's largest hedge funds outperformed their smaller rivals. The index also showed that the sector lagged the overall market during the month, and November saw investors go gaga for gold.

Here's how performance looks for the whole domestic hedge fund crowd. Scotia Capital's index takes in 38 money managers: Domestic hedge fund managers were up 3.24 per cent on an asset-weighted basis last month, according to the Scotia Capital Canadian Hedge Fund Performance Index. That measure takes the size of each fund into account. The Scotia Capital index was up 1.79 per cent on an equal weighted basis.

The largest hedge funds in this index are run by the redoubtable Mr. Sprott and colleagues at Sprott Asset Management. As you may have heard, this crowd knows gold.

Sprott Hedge Fund LP was up 8.65 per cent in November; this fund is home to $503-million, so it's a major component in Scotia Capital's index. Sprott Hedge Fund LP II, which has $551-million of assets, was up 9.21 per cent. A third of the long positions in each fund are in mining stocks. Scotia Capital measures performance at funds with $15-million or more, and at least one year of results.

By massively outperforming rivals, Sprott Asset Management shaped performance for the Canadian hedge fund industry. And unlike its peers, Sprott hedge funds beat the index. The S&P/TSX benchmark was up 4.92 per cent in November, while the S&P 500 rose 5.74 per cent.

In commenting on domestic hedge fund results, Scotia Capital said: "Gold hit another record high to post 34-per-cent gains year-to-date, and was the primary driver of the commodity market advance."

Scotia Capital's analysts went on to say: "Canadian hedge fund managers delivered solid aggregate results in November, benefiting from long commodity, fixed income and yen themes and short U.S. dollar trades. Benefit from the equities rally was muted due to generally conservative positioning."