On August 29, 2008, the Sprott Small Cap Equity Fund posted its 2008 interim management report of fund performance for the period ending June 30, 2008 on SEDAR.com
The following are a few excerpts from the report:
“The first quarter was a difficult and volatile one for most stocks, influenced by choppy earnings for many companies and a rising risk premium for equities associated with the credit crisis. Many stocks fell by double digits in the first three weeks of January. While most of these losses were recovered by the end of February, March was another challenging month. Significant increases in some commodity prices (e.g., oil, gas, coal and potash) helped the S&P/TSX Composite Total Return Index to achieve a substantial return in the second quarter, with the energy sector being by far the main driver of this performance. Small cap stocks, in general, continued to underperform the overall Canadian market by a substantial margin. In fact, this year is shaping up to be the fifth consecutive year of underperformance by Canadian small cap stocks relative to the S&P/TSX Composite Total Return Index.
Several new holdings were added during the first half of the year, as we identified some attractive buying opportunities. Furthermore, the Fund’s cash and short-term investments weighting declined from 23.4% of net assets at December 31, 2007, to 17.7% at June 30, 2008. Many of the new opportunities were in the energy sector, as we believe that soaring oil, gas and coal prices will result in huge profit increases. We believe that several of these companies will also benefit from improved efficiencies related to new technology and drilling techniques on Montney gas, Bakken oil and Quebec shale gas properties. In addition to the new purchases, spectacular performance by many of our energy holdings resulted in a significant increase in our energy sector weighting in the first half. However, we offset some of this sector growth through selected outright sales and by trimming most of our big winners. In addition, we shorted the S&P/TSX Capped Energy Index Fund in order to lower our overall net exposure to the energy sector while affording us the ability to hold on to some of our fast-growing energy companies.
The materials weighting in the Fund increased during the fi rst half of the year as well, from 18.4% as at December 31, 2007, to 27.8% as of June 30, 2008. Outright sales in the Fund included Peerless Energy Inc., Hanwei Energy Services Corp., Enablence Technologies Inc. and retailers Reitmans Ltd. and Rona Inc., both of which reported disappointing earnings. Given the ongoing challenges facing many companies and reduced earnings expectations (e.g., very high input prices, the Canadian dollar near parity, weakening economies and the ongoing credit crisis), we will continue to be very selective. Nonetheless, the negative sentiment toward most smaller cap companies has resulted in attractive valuations for many stocks.”
The Sprott Small Cap Equity Fund is managed by Allan Jacobs and Peter Imhof. 
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Last update : 29-11-2008 15:01
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