SmallCapPower (SCP): Canada just elected a majority government after a long 7 years of minority governments. How do you think this will impact the Canadian economy and capital markets?
Steve Palmer: The majority government will result in a stable political climate which is good for equities.
SCP: AlphaNorth is planning to launch a new mutual fund. Tell us a little about that. Who is the target investor audience for that?
Steve Palmer: We have filed a preliminary prospectus for a new mutual fund. This fund will be open to non-accredited investors and will have a small/mid cap Canadian equity focus.
SCP: The month of May so far has been pretty brutal for the stock markets. Do you think it is the seasonal trend playing itself again and things will likely improve after summer? Or it is the harbinger of something more sinister to come for the markets?
Steve Palmer: Canadian equities have generally performed extremely well since last August. I believe that the market needs to experience a healthy correction before going higher. I am not concerned about the recent market weakness. It is nothing more than a normal correction. Seasonality suggests that the spring is typically a weak period for Canadian equities.
SCP: Last month you had mentioned that the markets should do better in the short term after a soft patch experienced during April. Do you continue to hold that view going forward?
Steve Palmer: We continue to believe that markets will rally strongly. We thought the setback in March was the correction but markets obviously required more time to digest the recent gains. We have not changed our view for the balance of the year.
SCP: What are the major risks currently faced by the markets?
Steve Palmer: The biggest risk for the Canadian market is a slowdown in global growth which is greater than current expectations. This would cause commodity prices to decline significantly. The Canadian equity market is dominated by resource equities so this wouldn’t be good.
SCP: You had been a proponent of investing in high quality energy stocks in the recent past. Oil prices have come down sharply after making a recent high of around $120/barrel. Do you still like the energy space and if yes, how should investors try to play that sector?
Steve Palmer: We still prefer energy as one of the best areas to invest within the commodity space.
SCP: Most investment experts are advising investors to be on the sideline during the slow summer months. What is your strategy?
Steve Palmer: Equities have been quite weak over the last two months. The TSX Venture index has declined 20% from its recent high. We view this as a buying opportunity.
SCP: Do you continue to search for non resource names? Can you tell us a few preferred sectors and any companies that you like or have done well within the past?
Steve Palmer: We still prefer non-resource names. It is becoming quite tiring learning about the latest junior gold or iron ore company which seems to pop up on a daily basis. They are generally all the same. They have some historical resource in some far off country. They are typically raising money to re-drill to confirm the resource and generate a 43-101 compliant resource. We have been adding to several of our non-resource names lately. We like Functional Technologies (TSXV:FEB) which has proprietary yeasts which can be used in alcohol fermentation and baked goods which dramatically reduced carcinogens that are otherwise formed as a by-product of the fermentation process. Several large multinational companies are very interested in these products. We have seen other companies with disruptive technologies such as Naturally Advanced Technologies (TSXV:NAT), another portfolio holding, perform quite well after signing deals with large multinational corporations.
SCP: Thank you Steve.
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.