Alternative investment manager Sprott, which rose to prominence by “offering ways to invest in gold,” is looking to increase its non-resource assets. But that doesn’t necessarily mean investors need to flee the resource space.
In the last month or so, Gold Investing News has reported on a number of high-profile individuals and firms that appear to want out of the resource sector.
One is German gold stock newsletter Oliver Gross, who on October 30 decided to sell everything in his portfolio, noting his intention to return “when the dust has settled and we see something like a bottom and a bottom-building process.” Another is Sheldon Intwentash, CEO of Pinetree Capital (TSX:PNP). Though he and his company are known for investing in micro- and small-cap resource companies, during October they shed many of those assets in favor of — rumor has it — tech stocks.
This week, alternative investment manager Sprott (TSX:SII) can be added to the list. Bloomberg reported Tuesday morning that the firm, which rose to prominence by “offering ways to invest in gold,” is looking to increase its non-resource assets. Currently, such assets make up 60 percent of the Sprott Asset Management unit — up from 27 percent two years ago.
Explaining the reason for the change, Peter Grosskopf, CEO of Sprott, told Bloomberg that evolution is the name of the game. “We came from a very specific background, that background needed to evolve,” he said, adding, “[y]ou don’t want to have to send your best clients home as you get into a tough resource market.”
Essentially, he believes that by increasing its focus on non-resource assets — specifically “investments that will benefit from U.S. growth” — his firm will be able to help its clients weather the volatility currently affecting the resource space.
The switch in focus should also help Sprott itself. Grosskopf thinks that by looking at more at non-resource assets his firm, which saw its net income fall 67 percent year-on-year in Q3, should see more success. He explained, “[i]t takes much bigger numbers these days to have a profitable asset management company. The economics of our business have changed a lot.”
Investors are no doubt wondering if they should be worried that such well-known names are taking a step back from the resource space. However, a measured look at what Sprott is doing provides some hope. After all, as Grosskopf emphasized to Bloomberg, while he sees the US dollar hurting commodities for the next couple of years, his firm isn’t giving up on them.
Instead, Sprott is taking a more streamlined approach to the resource space using a technique dubbed “Resource Management 2.0.” And while the name makes it sound complicated, in reality the strategy is one everyday investors can put to use — it simply means “focusing on fewer investments” rather than many.
The upshot for investors, then, is that while exiting the commodities space is certainly an option, there are more balanced ways of dealing with the current turmoil. Copying Sprott’s combination of diversification and careful stock picking is certainly one option to consider.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.