In his monthly interview series with SmallCapPower.com, prominent hedge fund manager Steve Palmer discusses his outlook on the market, the sectors that he favours and companies he finds interesting.
SCP: You ended the year 2010 very strongly with the AlphaNorth Partners Fund gaining 113.6% for the year. Tell us briefly what worked so well for you and how did you manage to notch such strong performance?
Steve Palmer: We had a great year. We were fortunate that a lot of factors when our way in 2010. Firstly, we got the macro call right by focussing the portfolio on the long side throughout the year except for the summer months where we made strong returns on several investments on the short side. In addition, our stock picking did very well. There were a couple positions which increased in exess of 10 times while several others increased by over 100%.
SCP: The new year has started with some corrections, especially for the commodity heavy Toronto Stock Market. Do you believe that this is a sign for more upheaval in the future, or more like a short term breather for the market after the strong run last year?
Steve Palmer: It is more likely a short term breather. I expect a more significant correction in commodities during the summer.
SCP: What is your outlook for the year 2011? Do you believe that the economic growth will pick up pace globally?
Steve Palmer: I expect that 2011 will be another good year for equities. I don’t think it will be as good as 2010, but by the end of the year the TSX will be positive. I would guess in the 12-15% range. Small caps could do a bit better.
SCP: Do you believe that the stock market gains from the last year will carry through in the new year?
Steve Palmer: Yes, we will remain in a bull market.
SCP: You have mentioned in the past that you prefer to maintain a diversified portfolio of companies so that you don’t depend too heavily on the resource sector alone. What non-resource areas are you looking to concentrate on this year?
Steve Palmer: Technology, special situations and biotech.
SCP: In your opinion, what are the biggest risks facing the markets in 2011 and how do you plan to manage those?
Steve Palmer: The biggest risk factor for Canadian equity markets is the potential slowing or perceived slowing of Asia growth. This would cause commodities and resource stocks to decline and since they are such a large component of the Canadian market would significantly impact the TSX. This is why we invest in other sectors outside the resource space.
SCP: What sectors do you continue to like in the current year? Are you still bullish on energy? Are there some junior companies that you like in these sectors?
Steve Palmer: Within the resource space we favour uranium, oil and rare earths. We still like Primary Petroleum (TSXV: PIE) and Simba Energy (TSXV: SMB) is a recent addition to the portfolio. They have some promising properties in West Africa which are highly prospective for oil.
Steven Palmer’s Disclosure: I personally and/or my family and/or AlphaNorth Asset Management may own shares of the companies mentioned in this interview.