Sprott Bulks up Gold Investment Team Ahead of Expected Gains in Gold
Peter Grosskopf, CEO of Sprott, joins Jon Erlichman of BNN Bloomberg to discuss his expectations for the gold sector in 2020, and why Sprott has bulked up its investment team by acquiring Tocqueville Gold Strategies.
Jon Erlichman BNN Host: A major player in precious metals investing is bulking up its team of fund managers. Sprott has closed its acquisition of Tocqueville Gold Strategies and it is expecting to see more M&A and potentially more gains in the price of gold, which has been quite hot of late. Joining us to talk more about it is Peter Grosskopf, the CEO of Sprott. Peter, now that this deal has closed, can you discuss Sprott’s reasoning for bulking up its team?
Peter Grosskopf, Sprott CEO: At Sprott, we are focused on managing precious metal assets around the world and this was a unique opportunity in the U.S., where most of our clients are. [Tocqueville Gold Fund] was one of the oldest and most respected mutual funds for gold equities in the U.S. We're delighted to have been able to lift that team from Tocqueville, and it gives us about US$1.8 billion in new assets and managed equities.
Jon Erlichman: That’s a big number. In terms of what you think the investor interest is in this gold market, we can pick any lane. We could talk about the gold price, or we could talk about gold mining stocks. What has been the most dominant topic in the gold conversation?
Peter Grosskopf: Although gold is in recovery and the price is acting well, and considering the macro, we believe it will continue to shine, but by contrast gold equities have not been popular. This is especially true among retail investors, and they've largely ignored the sector. But we see the potential for a massive recovery in retail interest in the sector.
Jon Erlichman: Interesting, we've talked about the evolution of funds and the rise of exchange traded funds and the ability to have that quick access to gold, which has been a key part of Sprott’s strategy as well and keeping fees down. There are many options these days for investors, compared to say buying shares of a traditional gold miner.
Peter Grosskopf: That's right. Most of that interest in equities has gone into GDX [VanEck Vectors Gold Miners ETF], which has taken the bulk of inflows and we think there's going to be a return to active investing in the sector. M&A [merger and acquisitions] has been a large part of the reason that we think the tide has turned. You can pick good, undervalued mining companies that have been ignored by GDX and potentially do well.
Jon Erlichman: Let's dig into that. We've heard this from you before, the idea that if you're a smaller player in the industry, your costs are going to be higher than the big players in the industry, which is one of the potential catalysts for deals. I guess that's also impacting how you position portfolios, the kind of investments you're making.
Peter Grosskopf: Yes, and I think it makes sense to try and run ahead of the indexation by larger companies and their acquisition strategies. It makes sense to pick the targets in essence as opposed to those that are making the moves to buy them.
Jon Erlichman: Is this mostly a North American activity?
Peter Grosskopf: No, it's completely global. We’re seeing it around the world.
Jon Erlichman: What are you looking for in smaller gold mining companies? Maybe they're less covered? Everybody understands the story of the big gold miners, but maybe less so for the smaller names.
Peter Grosskopf: You are looking for companies that have had some challenges developing individual mines, and their costs of capital are high. They've had some issues perhaps with timing; because we all know these projects are taking longer and longer to develop. They're unloved, they're uncovered and yet they might have a quality project with a long reserve life at decent costs. That's the kind of sitting duck for the big companies to acquire.
Jon Erlichman: After a big year of deals in 2019, it sounds like you're expecting there will be another big deal in 2020?
Peter Grosskopf: I think there will be even more deals in 2020, maybe not the same dollar value because the mega deals were done last year. But we are likely to see many of these individual single mine, junior miners getting acquired.
Jon Erlichman: What is the determining factor for whether a deal happens? Earlier in the program, we were talking about Kirkland and Detour. Sometimes, there's an idea behind the scenes of bringing companies together and maybe people on different sides have different opinions about it. How do you get to the finish line and a deal ultimately comes together?
Peter Grosskopf: Each transaction is very different, but I think governance is improved. I think shareholders are having more impact on what boards and CEOs will do.
Jon Erlichman: Do you feel like that as a firm as well?
Peter Grosskopf: I believe so. The differentials have never been bigger between the large companies and the small companies. This puts pressure on the small guys to consider some deals.
Jon Erlichman: At what point do you as an investor knock on that door and offer your perspective? Is it sort of a balancing act?
Peter Grosskopf: We hope to not interfere in the regular course of business, but some events sometimes require us to take a more active stance and put some pressure on a board or a CEO.
Jon Erlichman: You talked about the dynamics of possible deals. What about gold itself? Which as we noted, you're expecting gold prices to continue to climb. 2019 was a big year, winning back some of the people who were focused on other stuff, such as Bitcoin. Can you give us a sense of how you're viewing investing in gold bullion right now?
Peter Grosskopf: We all know that gold had a strong year last year, and that was in an environment where it should not have done that well. The U.S. dollar was strong, and the economy was relatively strong. All the financial markets were strong. There was no real stress that was emerging. I think the chances are very good now that gold will potentially have a real outperformance, that there's been building momentum and that we could see an even better year in 2020.
Jon Erlichman: What would be the biggest catalyst for that? Is it this low interest rate environment, the global uncertainty, or maybe if stocks pull back, which some people seem to be concerned about?
Peter Grosskopf: The catalyst could be several different things. Low interest rates and low real rates will certainly help gold. I think it could be a crisis of confidence in a budget deficit or government that's gone too far on the debt side, or it could just be a pullback in other markets. Coming back to gold’s traditional role as an insurance asset, I think the odds for an insurance type event are fairly high.
Jon Erlichman: Are you making any forecasts on where you see bullion going?
Peter Grosskopf: I think it's going to have a really good year this year. Over the next couple of years, I would be surprised if we didn't see it take a run towards $2,000.
Jon Erlichman: Based on that pricing, does that impact the way that deals get done?
Peter Grosskopf: Absolutely because no quality asset will be left behind. I think that money could potentially pour into the sector. It is a very small sector from a capitalization perspective and as you get this trickle-down effect from the large caps, money will start to chase the growing companies, the emerging companies. I expect that it is likely to happen during a good strong bull market in gold.
Jon Erlichman: You’ve got this bulked up team now, so what should we be watching for with Sprott? Is it putting more money to work in the markets, offering new products?
Peter Grosskopf: Sprott has been a stealth growth story in the last two or three years. We've come from well under $10 billion, and now we're knocking on the door of CAD$15 billion. We are growing as an asset management firm. I think that shows that our clients are engaging with us and putting more money to work. From Sprott's perspective, we're like a royalty on the management of assets in the gold sector, and we want our shareholders to get the rewards of that by seeing a nice dividend, as well as some share price growth along with the asset growth.
Jon Erlichman: Finally, let’s address the idea of investors wanting lower fees. Is that something longer term that you're thinking a lot about, how those dynamics are going to play out?
Peter Grosskopf: Certainly fees have been a challenge for all asset managers, but for us, we're in a niche sector, and I think we have invested heavily in our team. Our investors seem more interested in “the performance” as opposed to pushing us on fees.
Jon Erlichman: Peter, nice to get your perspective.
Peter Grosskopf: Thanks for having me.
Insights from Sprott
More Insights from Sprott
Key Facts about Spent Nuclear Fuel
Uranium & Nuclear Power Play a Critical Role in the U.S.
Gold Poised to Climb on Fed’s Inflation Dilemma
Uranium: The Catalyst in the Clean Energy Movement
It's Show Time for the Fed
Past performance is not an indication of future results. All data is in U.S. dollars unless otherwise noted.
Investments, commentary and statements are unique and may not be reflective of investments and commentary in other strategies managed by Sprott Asset Management USA, Inc., Sprott Asset Management LP, Sprott Inc., or any other Sprott entity or affiliate. Opinions expressed in this presentation are those of the presenter and may vary widely from opinions of other Sprott affiliated Portfolio Managers or investment professionals.
The intended use of this material is for information purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances. The investments discussed herein are not insured by the FDIC or any other governmental agency, are subject to risks, including a possible loss of the principal amount invested.
Sprott Physical Bullion Trusts
Sprott Asset Management LP is the investment manager to the Sprott Physical Bullion Trusts (the “Trusts”). Important information about the Trusts, including the investment objectives and strategies, purchase options, applicable management fees, and expenses, is contained in the prospectus. Please read the document carefully before investing. Investment funds are not guaranteed, their values change frequently. This communication does not constitute an offer to sell or solicitation to purchase securities of the Trusts.
The risks associated with investing in a Trust depend on the securities and assets in which the Trust invests, based upon the Trust’s particular objectives. There is no assurance that any Trust will achieve its investment objective, and its net asset value, yield and investment return will fluctuate from time to time with market conditions. There is no guarantee that the full amount of your original investment in a Trust will be returned to you. The Trusts are not insured by any government deposit insurer. Please read a Trust’s prospectus before investing. The information contained herein does not constitute an offer or solicitation to anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be tax, legal, accounting or professional advice. Readers should consult with their own accountants and/or lawyers for advice on the specific circumstances before taking any action.
Sprott Physical Uranium Trust
The Sprott Physical Uranium Trust is generally exposed to the multiple risks that have been identified and described in the prospectus. Please refer to the prospectus for a description of these risks.
Past performance is not an indication of future results. All data is in U.S. dollars unless otherwise noted. The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be tax, legal, accounting or professional advice. Readers should consult with their own accountants and/or lawyers for advice on their specific circumstances before taking any action. Sprott Asset Management LP is the investment manager to the Sprott Physical Uranium Trust (the “Trust”). Important information about the Trust, including the investment objectives and strategies, applicable management fees, and expenses, is contained in the prospectus. Please read the prospectus carefully before investing. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. The information contained herein does not constitute an offer or solicitation to anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Sprott Asset Management LP. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell.
An investor should consider the investment objectives, risks, charges and expenses carefully before investing. Click here to obtain a Sprott Gold Miners ETF Statutory Prospectus and Sprott Junior Gold Miners ETF Statutory Prospectus, which contains this and other information, contact your financial professional or call 888.622.1813. Read the Prospectuses carefully before investing.
Sprott Gold Miners ETF and Sprott Junior Gold Miners ETF shares are not individually redeemable. Investors buy and sell shares of the Sprott Gold Miners ETF on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 50,000 shares. The Fund is not suitable for all investors. There are risks involved with investing in ETFs including the loss of money. The Fund is considered non-diversified and can invest a greater portion of assets in securities of individual issuers than a diversified fund. As a result, changes in the market value of a single investment could cause greater fluctuations in share price than would occur in a diversified fund.
Micro-cap stocks involve substantially greater risks of loss and price fluctuations because their earnings and revenues tend to be less predictable. These companies may be newly formed or in the early stages of development, with limited product lines, markets or financial resources and may lack management depth. The Fund will be concentrated in the gold and silver mining industry. As a result, the Fund will be sensitive to changes in, and its performance will depend to a greater extent on, the overall condition of the gold and silver mining industry. Also, gold and silver mining companies are highly dependent on the price of gold and silver bullion. These prices may fluctuate substantially over short periods of time so the Fund’s Share price may be more volatile than other types of investments.
Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Funds investing in foreign and emerging markets will also generally experience greater price volatility. There are risks involved with investing in ETFs including the loss of money. Diversification does not eliminate the risk of experiencing investment losses. ETFs are considered to have continuous liquidity because they allow for an individual to trade throughout the day. ALPS Portfolio Solutions Distributor, Inc. is the Distributor for the Sprott Gold Miners ETF and the Sprott Junior Gold Miners ETF. The underlying index for the Sprott Gold Miners ETF is rebalanced on a quarterly basis and a higher portfolio turnover will cause the Fund to incur additional transaction costs. The underlying index for the Sprott Junior Gold Miners ETF is rebalanced on a semi-annual basis and a higher turnover will cause the Fund to incur additional transaction costs. The US Dollar Index (DXY) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies.
Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.; several of which trade on various exchanges and have price fluctuations based on short-term dynamics partly driven by demand/supply and also by investment flows. Natural resource investments tend to react more sensitively to global events and economic data than other sectors, whether it is a natural disaster like an earthquake, political upheaval in the Middle East or release of employment data in the U.S. Past performance is no guarantee of future returns. Sprott Asset Management USA Inc., affiliates, family, friends, employees, associates, and others may hold positions in the securities it recommends to clients, and may sell the same at any time.
Sprott Gold Equity Fund
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectus which should be considered carefully before investing. Click here to obtain the prospectus or call 888.622.1813.
Sprott Gold Equity Fund invests in gold and other precious metals, which involves additional and special risks, such as the possibility for substantial price fluctuations over a short period of time; the market for gold/precious metals is relatively limited; the sources of gold/precious metals are concentrated in countries that have the potential for instability; and the market for gold/precious metals is unregulated. The Fund may also invest in foreign securities, which are subject to special risks including: differences in accounting methods; the value of foreign currencies may decline relative to the U.S. dollar; a foreign government may expropriate the Fund’s assets; and political, social or economic instability in a foreign country in which the Fund invests may cause the value of the Fund’s investments to decline. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual stock volatility than a diversified fund.
NOT FDIC INSURED • MAY LOSE VALUE • NOT BANK GUARANTEED
Sprott Asset Management LP is the investment adviser to the Fund. The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Sprott Global Resource Investments Ltd. is the Fund’s distributor.