A Silver Lining in Your Investment Portfolio

Transcription

1 A Silver Lining in Your Investment Portfolio Special Guest: David Franklin, from Paid for in part by Sprott Asset Management. April 4 th, 2011 Presented by: Brent Vandermeer, CIM & Peter Fraser, CFP, RFP Investment Advisors, DWM Securities Inc. & Fraser Vandermeer Asset Management

2 Agenda: A warm welcome from Peter Fraser and Brent Vandermeer David Franklin from Sprott Asset Management presents: A Silver Lining in Your Investment Portfolio: Insights into the silver market and how to properly manage your portfolio Question & Answer period 1

3 Our Core Values 2

4 Our Core Values 1) Investment markets remain dangerous Capital preservation is key it remains job #1 Ensure you work with an advisor who has the right views on the economy, money and markets Inflation adjusted returns remember the massive impact of inflation FVAM = Capital Preservation + Nimble Investment Management 3

5 Our Core Values 2) Investors pay too much and don t know it Transparent fee-based portfolios Since the fee doesn t change based on investment selection or asset class, you get unbiased advice Significant cost savings result in excellent returns FVAM = Cost Effective and Results Driven Investment Management 4

6 Our Core Values 3) P2A Do you know if you re on track? If you don t have our exclusive P2A report, you re not getting your money s worth from your advisor Do you have a financial plan collecting dust? Statements don t show if you re on track Year over year we lose track of our progress We ll show you if your investments are progressing the way they should be each and every quarter. FVAM = Accountability and Performance Measurement 5

7 P2A Sample 6

8 Our Medium Risk Portfolio Source: Bloomberg, Morningstar Asset Weight 2010 Return Gold 15% 26.8% Silver 5% 77.2% Platinum 2.5% 10.6% Short-Term Bonds (ishares XSB-T) 25% 3.2% Real Return Bonds (ishares XRB-T) 10% 10.6% Preferred shares (CPD-T) 5% 7.0% Sprott Cdn. Equity Fund (SPR100) 20% 57.6% Blue-chip, Canadian, dividend stocks (DYN) 5% 13.3% Agriculture stocks (COW-T) 2.5% 17.6% Water stocks (CWW-T) 2.5% 6.6% Emerging markets (ishares XEM-T) 7.5% 10.0% Sum: 100% 7

9 Under our care, this resulted in performance of: 22% in 2010 (after mgmt. fees) Based on the average model portfolio weightings shown on previous slide. (Actual results varied due to personalized portfolios and risk tolerance) 8

10 Sprott s Management Expertise Sprott Canadian Equity & Sprott Gold and Precious Minerals Performance Since 2001 Source: Sprott Asset Management 9

11 David Franklin from Sprott Asset Management A Silver Lining in Your Investment Portfolio Insights into the silver market and how to properly position your portfolio 10

12 Silver: Investment of the Next Decade April 2011 David Franklin Market Strategist, Sprott Asset Management Chief Executive Officer, Sprott Private Wealth

13 Disclaimer Sprott Asset Management LP is the investment manager to the Sprott Funds, (collectively, the Funds ). Important information about these Funds, including their investment objectives and strategies, purchase options, and applicable management fees, performance fees (if any), and expenses, is contained in their prospectus or offering memorandum. Please read these documents carefully before investing. Commissions, trailing commissions, management fees, performance fees, other charges and expenses all may be associated with investing in the Funds. The indicated rates of return for series A/class A securities of the Funds for the period ended December 31, 2010 are based on the historical annual compounded total returns including changes in unit/share value and reinvestment of all distributions or dividends and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. This communication does not constitute an offer to sell or solicitation to purchase securities of the Funds. 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. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Funds may be lawfully sold in their jurisdiction.

14 Disclaimer Forward-Looking Statements This presentation contains forward-looking statements which reflect the current expectations of management regarding future growth, results of operations, performance and business prospects and opportunities. Wherever possible, words such as may, would, could, will, anticipate, believe, plan, expect, intend, estimate, and similar expressions have been used to identify these forward-looking statements. These statements reflect management s current beliefs with respect to future events and are based on information currently available to management. Forwardlooking statements involve significant known and unknown risks, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance or achievements could vary materially from those expressed or implied by the forwardlooking statements contained in this document. These factors should be considered carefully undue reliance should not be placed on these forward-looking statements. Although the forward-looking statements contained in this document are based upon what management currently believes to be reasonable assumptions, there is no assurance that actual results, performance or achievements will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this presentation and Sprott does not assume any obligation to update or revise.

15 Firm Overview Specialists in Long Short Equity Firm established in 2000 Headquartered in Toronto, Canada Current firm AUM: US$8.5 billion (estimate as of December 31, 2010) Over 100 employees (Sprott group of companies) with 20 investment professionals The original Hedge Fund L.P. has generated a net annualized return of 23.7%* since its inception in November 2000 Parent company Sprott Inc. is publicly traded under symbol SII on the Toronto Stock Exchange * All returns are based on Class A units, net of fees, annualized if period is greater than one year, and as of December 31, 2010

16 Awards and Achievements Sprott Capital L.P. Hedge Fund of the Year, 2010 Sprott Hedge Fund L.P. Finalist; U.S. Equity Category 2008 Sprott Asset Management Inc. Finalist; Management Firm of the Year, 2008 Sprott Capital L.P. Nominee: Best Long/Short Hedge Fund Globally, Sprott Offshore Fund Ltd. Winner; Best Long/Short Hedge Fund Globally, 2008 Sprott Opportunities Hedge Fund L.P. Nominee; Best Long/Short Hedge Fund Globally, 2008 Sprott Opportunities Hedge Fund L.P. Winner; Canadian Based Manager Category; U.S. Performance Awards, 2007 Sprott Offshore Fund Ltd. #49; 'The Hedge Fund 100', May 11, 2009 Sprott Offshore Fund Ltd. #33 & Sprott Opportunities Hedge Fund LP #50; The World s 75 Best Hedge Funds, April 14, 2008 Sprott Hedge Fund L.P. #1 Hedge Fund Globally, 2002 Sprott Offshore Fund Ltd. Winner; Best Canada-Based Manager, 2006 Sprott Gold & Precious Minerals Fund Best Fund Over 1 Year; Precious Metals Equity Category, February 2010 Lipper Awards Sprott Canadian Equity Fund #1 Fund in Canada for ten-year return, March 2009 Sprott Growth Fund #1 Canadian-Focused Small/Mid Cap Equity Fund in Canada for one-year return, December 2007 Sprott Gold & Precious Minerals Fund #1 Precious Metals Equity Fund in Canada for annualized return since inception, 2006

17 Sprott Returns Sprott Mutual Funds NAV 1 MTH YTD 1 YR 3 YR 5 YR 10 YR INCEPTION Sprott Canadian Equity Fund, Series A (1997) $ % 0.1% 60.3% 3.9% 11.6% 21.4% 22.0% Sprott Gold & Precious Minerals Fund, Series A (2001) $ % -3.6% 77.3% 18.0% 14.8% % Sprott Energy Fund, Series A (2004) $ % 9.7% 38.8% -3.5% 4.1% % Sprott Growth Fund, Series A (2006) $ % -0.6% 21.8% -12.1% 1.8% - 1.6% Sprott Small Cap Equity Fund, Series A (2007) $ % 7.4% 58.5% 10.3% % Sprott All Cap Fund, Series A (2008) $ % -0.4% 31.9% % Sprott Gold Bullion Fund, Series A (2009) $ % -3.4% 15.1% % Sprott Tactical Balanced Fund, Series A (2009) $ % 2.7% 34.8% % Sprott Diversified Yield Fund, Series A (2010) * $ Sprott Short-Term Bond Fund, Series A (2010) * $ * In accordance with NI we will not publish returns for this Fund until it is one-year old. Performance numbers are as at February 28, 2011 and net of fees including incentive fees. 3, 5, 10 year and since inception returns are annualized.

18 Sprott Returns Sprott Hedge Funds NAV * 1 MTH YTD 1 YR 3 YR 5 YR 10 YR INCEPTION Sprott Hedge Fund L.P., Class A (2000)** $ % -3.5% 41.2% 5.3% 14.3% 20.6% 22.8% Sprott Hedge Fund L.P. II, Class A (2002) $ % -3.0% 39.8% 7.6% 15.0% % Sprott Bull/Bear RSP Fund, Class A (2002) $ % -2.4% 39.6% 8.5% 15.8% % Sprott Opportunities Hedge Fund L.P., Class A (2004) $ % 2.3% 10.0% 4.4% 8.6% % Sprott Opportunities RSP Fund, Class A (2005) $ % 2.2% 9.7% 4.3% 8.4% % Sprott Small Cap Hedge Fund (2007) $ % 6.5% 59.0% 12.4% % Sprott Absolute Return Income Fund, Class A (2010) $ % 2.9% % Sprott Specialty Product NAV 1 MTH YTD 1 YR 3 YR 5 YR 10 YR INCEPTION Sprott Private Credit Fund, Class A, Series 1 (2010)*** $ % 1.0% % * Sprott Hedge Funds are priced once per month on the last business day of each month. ** Closed to new investments. *** The Sprott Private Credit Fund s NAV and returns are as of January 31, Performance numbers are as at February 28, 2011 and net of fees including incentive fees. 3, 5, 10 year and since inception returns are annualized.

19 A History of Market Forecasts * % % +73.1% % * Cumulative performance of Sprott Hedge Fund LP from inception on Nov. 7, 2000 to Nov. 30, 2010 in CAD$. Source: Bloomberg

20 In the news Silver new high today Fed Discount Window Access Majority of Foreign Owned Banks Reporting Missed Investment Banks "Looking ahead, a bullish picture for the future of silver industrial demand emerges. From an estimated volume of Moz in 2010, the global total is expected to post an uninterrupted period of growth through to a record high of Moz in 2015," said the report. Silver Institute Gold, Silver Sales to Double on Investor Demand, Exchange Said April 4 (Bloomberg) -- American Precious Metals Exchange, one of the largest U.S. gold and silver dealers, said its sales may double this year as retail investors seek a hedge against financial turmoil, inflation and Japan s nuclear crisis. Sales of items including 1-ounce gold coins and 10-ounce silver bars are on pace to reach as high as 15 million units for the year, Chief Executive Officer Michael Haynes said today in a telephone interview from New York. The dealer shipped 7.5 million items last year.

21 Central Banks Gone Rogue Japanese Central Bank Record Intervention Equivalent to a Quantitative Easing 2 in 10 days Portuguese Central Bank and ECB Only Buyers of Portuguese bank debt in last year Ireland s central bank counterfeited 51 billion euros out of thin air. Ireland Government Meltdown First Euro government to fall due to the debt crisis Portugal second government to fall Three Banks Three Directions BOJ more easing? ECB tightening? Bank of England stagflation?

22 Central Banks Gone Rogue (con t) Nationwide issues 4bn in bonds to itself IRISH NATIONWIDE has issued 4 billion of Governmentguaranteed bonds effectively to itself. It can use the bonds to draw 4 billion in funding from the European Central to help tide it over a key refinancing period later this month. This is a horror story. It shows the cataclysmic conditions of the Irish banking system. The banks have borrowed 183 billion euros or 110% of the Irish Gross Domestic Product. They have burned through all their capital and a lot of their deposits as well. Tim Congdon of International Monetary Research The own-bond issuances are a pragmatic response in exceptional circumstances, said Donal O Mahony, global strategist at Davy Capital Markets in Dublin.

23 Silver: Investment of the Next Decade 22

24 Silver Investment Demand

25 Investable Ratio Analysis Comparison of Key Gold-to-Silver Ratios (Ratios in Dollar Terms) Key Takeaways Gold bars and coins in existence (1) ~2.2Bn ounces The value of all gold bars and coins in existence is ~$3.0Tn at current prices Silver bars and coins in existence (1) ~1.2Bn ounces The value of all silver bars and coins in existence is ~$34.8Bn at current prices Value of gold bars and coins in 86 existence to silver bars and coins in 118:1 existence (1) Investments in the SPDR Gold Trust to ishares Silver Trust (2) 6: YTD U.S. Mint gold coin sales to silver coin sales (3) 0.61:1 Supply / Inventory of investable gold is significantly higher than the supply of investable silver but investors are choosing to put disproportionately more money to work in silver than in gold and the disparity is even greater in physical coin sales PHYS to PSLV IPO s 0.75:1 Gold Money 1:1 (1) Gold and silver data according to the CPM Group 2010 Gold Yearbook and CPM Group 2009 Silver Yearbook, respectively. (2) Ratio is of net dollar purchases of the GLD to the dollar purchases of the SLV since inception of SLV in April, (3) January 2011 US Mint Coin Sales sourced from

26 Silver: Paper vs. Bullion Market The total open interest of silver contracts on the COMEX is equivalent to 1.07 billion ounces of silver (1) Total open interest represents: ~144% of 2010 total mine supply (2) ~25x total registered warehouse stocks held at the four COMEX depositories (3) 1,200 (MMoz) ,066 MMoz 742 MMoz 43 MMoz COMEX Open Interest 2010 Mine Supply COMEX Registered (Dealer) Inventories Settlement of open positions will create incremental demand for physical silver (1) As reported in the CFTC Commitment of Traders as at March 1, 2011, includes both futures and options (2) CPM Group (3) Registered warehouse stocks as reported in COMEX s Metal Depository Statistics, as at March 4, 2011

27 Who is Buying? Silver imports have increased fourfold from 2009 to In 2005, the Chinese exported just over 100 million oz of silver. In 2010, they imported just over 120 million oz. -The Silver Institute, Feb India s silver imports may jump 20% in 2010 A partial recovery in consumption during the festival season is seen pushing up India's silver imports in 2010 by 20% to 1,200 tonnes, potentially supporting world prices, a trade body head said. -The Economic Times, Dec. 8

28 China Silver Imports 4x Increase in Imports

29 Who is Buying? [January] sales of the one-ounce American Eagle silver coins by the US Mint surged to a record at nearly 6.5 million, the highest since the coin s introduction in Thomson Reuters, Feb.11 Canada s sales of silver coins will jump more than 50 percent this year and will continue to climb in 2011, said David Madge, the director of sales at the Royal Canadian Mint The Ottawa-based mint sold 10.3 million ounces of coins in 2009, he said. - Bloomberg, Nov. 18

30 Coin Sales Exploding

31 Silver is a Rare Earth

32 Supply Shortages As of November 10, 2010, the Trust had contracted to purchase a total of 22,298,525 ounces of silver bullion. As of December 31, 2010 a total of 20,919,022 ounces of silver bullion had been delivered to the Trust. The Trust expects to take delivery of the final 1,379,503 ounces of silver bullion by January 12, 2011 and will subsequently publish the serial numbers of all bars held by the Trust on its website: - PSLV Press Release, January 10, 2011 * The Sprott Physical Silver Trust completed all of its silver purchases by Nov. 8, Delivery for physical took two and a half months.

33 Silver: Historical Performance $50 $45 $40 Spot Silver (US$/oz) $35 $30 $25 $20 $15 $10 $5 $ Source: Bloomberg 32

34 Silver Technicals The fact that silver only gave back 35% of its advance of the impressive rally from August implied that not only would prices move to new highs, but the rally from $26.38 on January 28th should be 100% to 125% of the height of the August- December move. This targets $40 to $43. It would take a close below $28 to violate the bullish bias and prompt us to re-think the analysis.

35 Investment Survival Kit

36 Sprott Physical Gold Trust (PHYS) Direct investment in unencumbered, fully-allocated physical gold > 99.5% of Trust s total net assets invested in physical gold in London Good Delivery bar form Monthly right to redeem units for physical gold bullion Minimum of one London Good Delivery bar; can deliver to most locations worldwide Gold stored at Royal Canadian Mint in Ottawa, Canada Crown Corporation of the Canadian Government, founded in 1908 Mint s obligations generally constitute unconditional obligations of the Government of Canada Canada maintains a AAA sovereign rating from S&P Convenient, liquid investment in physical gold PHYS Units trade on NYSE Arca ( PHYS ) and the TSX ( PHY.U ) Tax-advantaged investment for U.S. non-corporate investors For long-term investors who hold units for one year or more and file a QEF election to the IRS, long-term capital gains currently taxed at 15% (vs. 28% for physical gold and gold ETFs)

37 PHYS NAV

38 Sprott Physical Silver Trust (PSLV) Direct investment in unencumbered, fully-allocated physical silver > 97% of Trust s total net assets invested in physical silver in London Good Delivery bar form Monthly right to redeem units for physical silver bullion Minimum of 10 London Good Delivery bars; can deliver to most locations worldwide Silver stored by Royal Canadian Mint in Ottawa, Canada Crown Corporation of the Canadian Government, founded in 1908 Mint s obligations generally constitute unconditional obligations of the Government of Canada Canada maintains a AAA sovereign rating from S&P Convenient, liquid investment in physical silver PSLV Units trade on NYSE Arca ( PSLV ) and the TSX ( PHS.U ) Tax-advantaged investment for U.S. non-corporate investors For long-term investors who hold units for one year or more and file a QEF election to the IRS, long-term capital gains currently taxed at 15% (vs. 28% for physical silver and silver ETFs) (1) (1) For United States non-corporate taxpayers; subject to increase to 20% in 2011 if current tax rate is not extended.

39 PSLV NAV

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41 Thank you for joining us today. Your feedback is most welcome. Visit us at: Contact us at: Fraser Vandermeer Asset Management DWM Securities Inc Woodward Drive, Suite 101 Ottawa, ON, K2C 0P9 Ph: (613) Fax: (613)

42 Disclaimer: This presentation is solely the work of Brent Vandermeer and Peter Fraser for the private information of their clients. Although the author(s) are registered Investment Advisors with DWM Securities Inc, a DundeeWealth Inc. Company, this is not an official publication of DWM Securities Inc. The views (including any recommendations) expressed in this presentation are those of the author alone, and they have not been approved by, and are not necessarily those of, DWM Securities Inc. 41