SmallCapPower (SCP): What is your take on the recent volatility in the stock markets during the last 3 months? What do you attribute that to?
Steve Palmer: The equity market has been largely focused on Europe over the past few months. Not much else has mattered. Once there is a ring fence around the European situation, attention will shift to the how cheap equities are.
SCP: In your last interview with us in late August, you were optimistic about the prospect for the markets and even said that markets could make new highs within 6 months. Do you still believe that or risks have increased significantly for that to happen in the foreseeable future?
Steve Palmer: My view has not changed. In fact, as time passes and as new data arises, I have further conviction that things will unfold as I predicted.
SCP: In a recent market commentary for your funds you made an interesting parallel between the current market turmoil and what happened during 1998 financial crisis that originated in Asia. Do you believe that the current crisis with its epic centre in Europe will be contained eventually without doing too much damage to the global financial system? Is the scale of this crisis not a lot bigger considering that a whole region is struggling heavily when US is also in the doldrums
Steve Palmer: The US is not as much in the “doldrums” as the media would lead you to expect. US retail sales were +7.9% year over year in September. The economy is still growing. The US is experiencing a mid cycle slowdown. There is nothing unusual about that. There are always problems in the world. The current issues are similar to what we have been through before.
SCP: Do you believe that year 2012 will be bullish for stocks? And, if so why?
Steve Palmer: I am optimistic for the first half of 2012. We will have to wait and see how things unfold.
SCP: What is your view on the resource heavy Canadian markets? Stock exchanges in Canada, especially the junior TSX Venture exchange has seen more than one third of its value being wiped out this year. Do you believe that resource stocks have sold more than they should and will you be a buyer at these levels?
Steve Palmer: We have been a buyer over the past few weeks. We recently launched a new mutual fund, the AlphaNorth Growth Fund. For example, the Growth Fund is heavily weighted in resource positions (approximately 60%). It is quite possible that resource shares will be the best performers over the coming months, similar to how the technology stocks performed in 1999.
SCP: Where can people find more information on AlphaNorth Growth Fund? Who can invest in this fund and is there a minimum investment amount?
Steve Palmer: We have some info on the AlphaNorth Growth Fund on our website at www.alphanorthasset.com or investors can contact our VP Sales and Marketing, Skye Collyer, at 416-506-0776 x227 or skye@alphanorthasset.com. All investors with a tolerance for above higher volatility can invest in this fund with a minimum investment of $1000.
SCP: After the recent market actions has your sectoral outlook changed? Are you finding resource sectors more appealing now or you see more risks down the road?
Steve Palmer: Resource shares have generally been hit the hardest. We currently don’t have any sector biases. Earlier in the year we had a bias towards non-resource companies. Given the recent weakness we believe that resource equities offer much-improved risk/reward.
SCP: What would you suggest to investors who are still interested in small cap stocks?
Steve Palmer: Small cap equities are the best performing asset class over the long term. It is after significant declines like we have recently witnessed that equities and in particularly small cap equities perform the best. We have managed small cap funds since 1998 and our best years have been 1999, 2003, 2009 and 2010, In each of these years we achieved 100%+ returns.
SCP: Can you share a few names that you have liked in the past or continue to like?
Steve Palmer: We don’t typically give out names in our portfolios. However, a few names which we have mentioned in previous commentaries which currently provide extremely attractive risk/reward in our opinion are Ryan Gold (TSXV:RYG), Orbite Aluminae (TSX:ORT) and Functional Technologies (TSXV:FEB).
SCP: Can please provide some details on these companies?
Steve Palmer: Sure, RYG – Ryan has recently completed its initial drilling on a very promising gold prospect in the Yukon. The vast size of the company’s land position, quality management and attractive drill targets give us great confidence that finding a major deposit is only a matter of time.
ORT – Orbite Aluminae is currently building a plant to produce high purity alumina. They plan to extract this alumina with a proprietary process from their aluminous clay deposit in Quebec. High purity alumina sells for a huge premium over standard grade alumina.
FEB – Functional develops proprietary yeasts which are used baking and in the fermentation process of wine and spirits. They are already making sales in the wine industry and are in the late stages of testing for the baking industry, which is a very large market.
SCP: Thanks for taking the time for our interview today. We look forward to following up next month.
Mr. Palmer’s Disclosure: I personally and/or my family and/or AlphaNorth Asset Management may own shares of the companies mentioned in this interview.