Survive the bear with peak oil bet

‘It ’s hard to imagine we are not in a recession in the U.S.,” considers Eric Sprott, manager of the eponymous Sprott Canadian Equity Fund. Despite being “one of the most vocal bears on the U.S. economy” over the past decade, Sprott has achieved the top track record in the Canadian equity space since its inception in September, 1997; now it appears to “all be happening as predicted.”

Sprott Canadian Equity Fund is invested almost exclusively in commodities and equity securities of companies that produce oil, natural gas, base metals and precious metals, but to suggest it is just another commodity fund is to perhaps miss the point. The fund’s gold and silver bullion holdings — 20% of assets — are the hedge for being long the rest of the commodity complex.

Unfortunately, the gold hedge wasn’t working in August when credit markets and the riskier commodity companies, which Sprott owns his share of, were getting rocked.

Sprott accuses the U.S. Federal Reserve Bank of leaning against an important barometer of financial panic by suppressing the dollar price of gold.

Stock-picking ability cannot make a difference “in a day or a week or a month,” he contends. Sprott’s penchant for more speculative small capitalization names makes this point especially salient.

His belief in the peak oil thesis provides the assurances for maintaining risky bets in the energy sector in the eye of the storm. High conviction warrants risky bets, and small capitalization oil producers hold prospects for highest growth.

Financial Post (Canada)