SprottWealth Insights

How Smart Is Your Money

When it comes to investing, even the most sophisticated investor can suffer from emotional decision making. Faced with an unsettled macro environment, it’s certainly enough to make investors jumpy. Educating yourself on your investment options is of vital importance in order to make wiser decisions.

We’ve all heard the old adage, “work smarter, not harder”. The same theory holds true in investing. So how does one ensure their money is working smarter when the markets are volatile and the outlook for the Canadian and global economies are still uncertain? A good start is to seek expert advice.

Preferred Magazine had the opportunity to discuss some investment strategies with Warren Gerow of SprottWealth, a Toronto-based wealth management firm. Gerow is a leading investment expert, having spent over 40 years in the industry. He began his career at Royal Trust as a Trust Officer and an investment manager for trust accounts. He later moved to Nesbitt Burns as an account executive and in house expert in option and convertible arbitrage strategies. In 1990, Warren became the Treasury Manager for the New Brunswick Workplace Health, Safety and Compensation Commission, reporting to their investment committee. He took the WHSCC from a 4th quartile performing fund to a 1st quartile performing fund and was asked to consult on manager selection to pension and endowment funds because of his demonstrated process and performance.

Preferred Magazine: What does SprottWealth specialize in?

Warren Gerow: SprottWealth is a full-service advisory firm with roots dating back to 1981. We offer our clients institutional quality asset allocation in our Smart Money Portfolios, the same types of sophisticated strategies that pension funds, sovereign wealth funds and endowments enjoy. We also introduce our clients to exclusive private placement opportunities with companies that our team believes have solid growth potential, as a means to further diversify our clients’ portfolios with a unique asset class.

PM: What types of customers are you comfortable working with?

WG: We are comfortable working with anyone and we have clients of all ages and wealth segments. The minimum investment required for our Smart Money Portfolios is $500,000.

PM: With the current market volatility, what approaches do you use when giving clients advice?

WG: Before we even think about giving a client advice, the first thing we need to understand is the client’s definition of risk and their tolerance for it. In today’s market, unexpected events have become more common place, which has increased investor uncertainty. The purpose of the SprottWealth Smart Money Portfolios is to reduce uncertainty of returns. As a result we spend most of our time searching for strategies with low correlation to market indices. That means that if market indices trend downwards, for example, we expect that our strategies will not be as negatively affected as the broad market.

PM: What is the “Smart Money” solution?

WG: The Smart Money solution is really twofold. First we use an institutional process for manager selection, portfolio construction and monitoring. This process includes both a quantitative and qualitative analysis of each manager. Then a rigorous portfolio construction process is implemented to determine which managers work best in combination with each other to provide the best risk-adjusted return. This involves an in-depth correlation analysis to make sure that the managers will not trend together based on market conditions. We have four portfolios based on risk characteristics: income, balanced, growth and long term growth. Once the managers are in place, we conduct regular monitoring to ensure they are staying within their mandate and performing as expected.

PM: What are alternative investments? What is the goal of alternative investing?

WG: Alternative investments are investments in assets classes other than the traditional assets of stocks, bonds, and cash. Alternative strategies can include stocks, bonds and cash; however they usually would incorporate a hedging component or a strategy different than the typical ‘long-only’ investment strategy that traditional investments employ. Some types of alternative investments are private equity, infrastructure, real estate, private debt, mortgages, among others. The key goals of alternative investing are diversification, absolute returns, lower volatility or risk, uncorrelated returns to traditional equity and bond markets and to reduce exposure to the inherit market risk drift which comes with asset bubbles.

PM: What macro factors have led to the increased interest in alternative investing?

WG: The main drivers of this resurgence are slower economic growth coupled with historically low interest rates which have been impacting various asset classes. As investors are unable to find yield in their fixed income investments, they tend to take on more risk than they are comfortable with and create stock bubbles in the search for yield elsewhere. The imbedded risk in the market has spurred interest in alternative sources of income and capital appreciation uncorrelated to the markets.

PM: Where is the ‘smart money’ going? What differentiates Smart Money Portfolios from a traditional bank offering?

WG: Several studies have shown that the ‘smart money’ is going to the alternative investments space. That includes hedge funds, real estate, private equity, infrastructure and more. The Smart Money portfolios differ from traditional offerings by using an “open architecture”, which includes a full range of alternative investment strategies. We are not limited to one or two families of funds. This enables the Smart Money portfolios to allocate to best-of-breed managers without constraints of the large asset gatherers. Typically, a traditional bank will only put their clients in bank owned product.


To learn more about Smart Money and alternative investments, or to inquire about investing with SprottWealth, please call or email Poornima Narayan at pnarayan@sprottwealth.com or (416)943-4383.