AlphaNorth’s President and Chief Investment Officer Steven Palmer discusses how China’s slowing growth will affect the Canadian economy and describes how timing is everything when it comes to speculating in medical marijuana stocks. Mr. Palmer also provides his outlook for the Venture exchange and updates some of his past stock picks.
Mark Thorburn: There’s been a frenzy of investor interest around medical marijuana stocks in the junior space recently. Do you think this is just another bubble or is there a legitimate case to be made for companies active in this space?
Steven Palmer: It seems to be a bubble in the making and there sure has been a lot of money made. Some of the early investors getting into some of these names there is probably more money to be made, but the key is to get out at the right time.
Mark Thorburn: Black Rock CEO, Larry Fink, says growth in China will slow down to 7% from 7.7% in 2014. If this were to occur, how would it affect the Canadian economy?
Steven Palmer: Well, obviously, the Chinese growth is slowing. It’s unsustainable to have a major economy growing by 10% year over year. I think that the estimates areabout 7 ½% for 2014, which is still a very healthy growth rate. And that type of growth will still provide lots of demand for resources.
Mark Thorburn: Your firm AlphaNorth Asset Management has been successful by what your company calls exploiting efficiency in the Canadian small cap universe. Can you elaborate on this?
Steven Palmer: Well what we try to do is focus on names where there’s no analyst coverage, or no other institutional ownership and normally in those situations the market can be priced inefficiently. At the time of investment there’s quite often little volume. But as the awareness of the company grows, as analysts pick up coverage and more institutions buy the stock, that increased volume is generally a good thing for the stock price.
Mark Thorburn: In addition to your flagship hedge fund, Alpha North has two mutual funds. What is the difference in the investment strategy for the mutual funds verses the hedge funds?
Steven Palmer: Well the investment strategy is very similar for all funds. We focus on the long term as the small cap market is quite volatile on a monthly basis. For the mutual funds, we focus on larger companies, so it’s really a small to mid cap equity fund. The benefits of investing in the mutual funds are that you get the daily liquidityof a mutual fund and the lower risk of investing in more established companies.
Mark Thorburn: The Venture Exchange has gotten off to a strong start in 2014. Do you expect this up-trend to continue?
Steven Palmer: I think the Venture Exchange will continue to be strong this year. Normally in the Venture markets, they’re either going straight up or straight down. And in my view the market bottomed in June of last year; and has rallied since that time and I think that will continue.
Mark Thorburn: Which sectors of the Canadian economy do you think will outperform this year, and why?
Steven Palmer: Currently we don’t really have any major sector biases. So I think all sectors should perform well this year.
Mark Thorburn: What’s the latest with Spectra7 Microsystems, one of your previous picks? It had a steep decline, but it’s bounced back lately.
Steven Palmer: In the short term, the share price has been under pressure. The company was running very low on cash so they were working on getting additional financing. Once that was in place; which was, I think they announced last week, the share price has rebounded.
Mark Thorburn: In our last interview you mentioned that you liked BSM Technologies; do you still like this name?
Steven Palmer: Yeah, we’re still very big believers in BSM. We’ve owned the stock for several years. When it was near the high it was a little bit ahead of itself. We were taking some money off the table at around $3.25. But since the pull back down in the $2.40 per share range, we’ve been adding again to the position.
Mark Thorburn: If you could give investors one piece of advice, what would it be?
Steven Palmer: I would suggest that investors focus more on the long term and not so much on the short term fluctuations in the market; which are often quite emotional. Stick with an investment plan and focus on the long term.
Mark Thorburn: Thanks for taking the time for the interview, Steve.