Investment Philosophy & Style

At Sprott Asset Management Inc. (SAM), we have maintained an investment philosophy and style that have proven increasingly rewarding for our investors over time. We believe that fully understanding the underlying reasons why and how we make the choices we make is vital when making the decision to invest with us.

All SAM portfolios are based on fundamental investment disciplines focused on balancing risk to achieve outstanding returns. We consider ourselves “investment opportunists,” with the primary objective of achieving long-term capital appreciation by investing in equities with superior value and by capitalizing on under-valued investment opportunities. We take a consistent, disciplined approach to investing based on sound fundamental analysis and independent research. We carefully explore, analyze and select what we consider to be a portfolio of the “best ideas” that we believe equity markets have to offer.

Using a combined top-down and bottom-up approach when making investment selections, our Portfolio Managers strategically position our portfolios to benefit from the evolving economic and financial landscape. We believe that a clear understanding of the macroeconomic environment combined with detailed analysis is very important to determine sector weightings and subsequent stock selections within our portfolios.

The most important decision we made in the past five years was that we had ended a financial mania as of March 9, 2000. This realization caused us to ‘morph’ into a very defensive investment posture. At that time, with Sprott Managed Accounts and the Sprott Canadian Equity Fund in place, the first step was to eliminate vestiges of new economy positions of which we owned minor interests in. Next we evolved into the gold and precious minerals area, created a large cash position, and made prudent investments in areas considered to be defensive such as food, beverages, fixed income and oil and gas, which allowed us to not only protect the wealth of our investors, but to also achieve outstanding returns despite a deteriorating economic and global financial environment.

With such a negative outlook on the horizon, we were determined to not only protect our existing portfolios, but to also capitalize on deteriorating financial markets and the exciting potential for the gold sector. Our determination led us to launch a long/short strategy fund in late 2000, the Sprott Hedge Fund LP, followed by the launch of the Sprott Gold and Precious Minerals Fund one year later. We have since launched other variations of the Hedge LP to serve a greater client base as well as most recently, the Sprott Energy Fund, as our extensive research in the energy area has uncovered what we believe to be exceptionally compelling opportunities for our investors. In 2004, we launched the Sprott Opportunities Hedge Fund LP, a long/short equity hedge fund focused on uncovering value and providing downside protection.

GENERAL INVESTMENT PROCESS

SAM believes that the market for small and medium capitalization growth companies is inefficient, and that by capitalizing on these inefficiencies, we can potentially realize superior returns on the “Long” side of our portfolios.

Our investment managers typically seek superior investment opportunities, which demonstrate a combination of the following characteristics for the Long side of our portfolios:

At SAM, the decision to sell is as important as the decision to buy. An individual security is sold (or sold "short" in our long/short funds) when its price reaches a level that no longer reflects its fundamental valuation, or the company management structure changes, or the underlying investment assumptions are no longer valid. We typically short large capitalization liquid equities.

GENERAL INVESTMENT PROCESS ILLUSTRATED