2017 ETP Fall Forum New York City November 28, 2017 Panel: The Need to Differentiate Among Smart Beta Strategies

Transcription

1 2017 ETP Fall Forum New York City November 28, 2017 Panel: The Need to Differentiate Among Smart Beta Strategies Ed Coyne, EVP, National Sales, Sprott Asset Management USA, Inc. (646) / mailto:ecoyne@sprottusa.com How do you define smart beta? What makes it smart? Ed Coyne: At Sprott, we define smart beta as a factors based approach that identifies the Factors that Matter for a particular segment of the market. For example, for our senior gold miners ETF, Sprott Gold Miners ETF (SGDM), we focus on balance sheet and revenue growth factors, while for our junior gold miners ETF, Sprott Junior Gold Miners ETF (SGDJ), we focus on price momentum and revenue growth. We think this makes The Sprott ETFs smart because our factors have been key drivers of historical returns over full market cycles when analyzing mining stocks. Explain what differentiates your products from other smart beta products? What is the value add? Coyne: What differentiates Sprott s investment products relative to our peer group is that our ETFs were co-designed by our active precious metals team. While they are rules based, the factors selected were vetted by portfolio managers with extensive experience in the sector. The output of the factors tends to concentrate our company exposure to the higher quality companies in the senior gold mining space (SGDM), and for SGDJ, provides true exposure to the junior gold mining companies that are exhibiting the fastest revenue growth and/or price momentum. For each ETF, the top ten positions represent a significant weight to the overall fund as the factors drive greater conviction. We have found that most investors who allocate to mining equities are looking to get more out of their gold and/or silver core physical allocations, such as (PHYS Gold) and (PSLV Sliver). We believe that thee value add is greater leverage to the gold and silver trade meaning the underlying metals prices - over a full market cycle. Do you differentiate your products based on type of client? Are certain products more or less appropriate by client type? Coyne: Sprott has an established history specializing in precious metals and mining investments. We offer a full suite of solutions from Physical Storage of gold (PHYS), factor based ETFs in senior (SGDM) and junior gold (SGDJ) mining equities, active long/short equities as well as private credit and private lending funds. Depending on the client s liquidity needs, over all allocation and stated return objectives, some are more appropriate than others. Sprott serves as a consultant to our shareholder base by guiding each investor through the precious metals allocation opportunities. 1

2 Are you applying smart beta to other product categories such as fixed income, commodities, etc.? Coyne: Not at this time. However, we are exploring opportunities to expand our alternative investment footprint into other areas of the market. There are many different smart beta strategies. Many sound similar. What should investors be looking at when evaluating smart beta products? How can they differentiate between all the different types of smart beta products? Coyne: When evaluating smart beta products, an investor should be looking at the firm s commitment to the asset class they are investing in. Many firms roll out a fund for every sector or sub-sector under the sun with the hope of gaining market share. The very nature of actively using ETFs is to gain exposure to niche sectors such as gold and gold equities. When investing in niche markets, Investors should be selecting specialists in each sector of the market who have a history and track record of success. How are investors using your products? How should they be using your products? Coyne: It depends on the product. Take Sprott Physical Gold Trust (PHYS); our investors like (PHYS) because it allows them to own physical gold in a fully allocated, unencumbered, potentially tax advantaged way. Gold tends to be a core allocation for our investors. When we look at the investors in our senior gold (SGDM) and junior gold mining ETF (SGDJ), many view the miners as tactical with a goal of getting more torque out of their gold or silver allocation. Overall, investors should be viewing our products as true alternatives to traditional investments such as stocks and bonds and not automatically lump them into the commodity space. Are investors or users of your products educated enough about what they are buying? What type of education is needed? What is your company doing to provide that education? Coyne: The investors I tend to connect with seem to have a high degree of understanding of the value proposition of gold and silver allocations in both a physical form as well as through mining equities. Having said that, most investors have a narrow view of the precious metals space. Many investors view an allocation to gold and silver as a warning that the rest of their portfolio is in danger. The reality is that; a 5% to 10% allocation to precious metals and mining can allow an investor to have an opportunistic view on their equity allocations, knowing they have taken steps to diversify their portfolio with a proven asset that has a low correlation to equities over multiple market cycles. Sprott continues to provide education on gold, silver and mining equities through conferences, white papers such as our monthly Precious Metals Watch, authored by Senior Portfolio Manager, Trey Reik, as well as Webcast and short videos posted on our website at How do you respond to criticism that ETF s are causing a bubble? Do you worry that with the popularity of passive or rules-based strategies, less emphasis is placed on fundamentals and stocks are not priced correctly? Crowded trades? I don t see ETFs causing a bubble; I see certain sectors causing a bubble. Chasing returns is nothing new. We have seen it across sectors, products and overall markets countless times. Like all bubbles, when they pop the talent tends to survive. This goes back to an earlier statement on 2

3 selecting specialists when investing in niche markets. Pick managers who have a passion and history for the sector you are investing in. What is the next generation of smart beta products? Better measurement of current factors? Multi-factor or dynamic weighting? Unstructured data/machine learning? Application of factors to different asset classes? Coyne: The growth of active ETFs. It s no different than the age old active versus passive debate. I don t see why it s one or the other. In fact, some of the best investors have discovered that a combination of both active and passive tends to work quite well. I envision active ETFs being positioned alongside smart beta products. What hurdles do you face when creating new products? Coyne: Acceptance, distribution, scale, liquidity, etc. The list is a mile long. The fact is; our profession has way too many products. When creating a new product, you have to ask yourself, is this product good for the investor? Does the market need it? How will this benefit the end-user? How do you and how should investors distinguish between a factor that has a payoff and data mining? Coyne: Factors that have a payoff in my mind are based on a history of success in active models. The example I used earlier on strong balance sheets for senior gold miners (SGDM) and price momentum for junior gold miners (SGDJ) have been common threads of success over full market cycles. When I think of data mining, it s an extension of a factor. Factors are based on repeated data points that have a positive or negative outcome of greater than 50% over multiple market cycles. Without data mining, it s very difficult to create credible factors. Important Disclosures This commentary is intended solely for the use of Sprott Asset Management USA Inc. for use with investors and interested parties. Investments, commentary and statements are unique to this strategy 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. 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 3

4 carefully before investing (available here). 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 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 the Canada Deposit Insurance Corporation or any other 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. 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. 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, the rendering or 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 ETFs An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a Statutory Prospectus, which contains this and other information please contact your financial professional, visit or call Read the Statutory Prospectus 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. 4

5 5