Fri, 09/03/2007 - 05:56
Charles Supapodok says that with silver outperforming gold recently and its price set to continue rising in the coming years, the Artemis strategy based on investment in mining companies is poised to capitalise on growing interest in silver investments and the precious metal itself.
HW: What is the background to Artemis Capital Management and the Artemis Silver Fund?
CS: In 2000-01 I started to manage my own money in a managed account applying a silver-focused model I have developed. By 2006 I managed eight accounts with around USD10m, returning about 50 per cent net per annum.
After achieving a solid track record for my managed accounts, I decided to move from a managed accounts structure to a fund, where more portfolios could be exposed to the strategy. In January this year we founded Artemis Capital Management, the investment manager, whose directors are Ken Berscht and myself, and launched the Artemis Silver Fund with assets of USD1m.
HW: Who are your key service providers?
CS: The Artemis Silver Fund works with Walkers as legal advisers, Deloitte as auditor, Bisys Hedge Fund Services (Cayman) as fund administrator, and Man Financial in Canada as prime broker.
HW: How and where do you distribute the funds? What is the profile of your current and targeted client base?
CS: We distribute the Artemis Silver Fund through our exclusive distributor ESC Financial Services in Singapore. Our targeted client base consists of institutions and high net worth individuals, mainly in Asia, who are seeking either to diversify their portfolios or to gain some precious metals exposure through silver. In parallel, ESC Financial Services will introduce the fund globally through channels in Europe.
HW: What is your investment process?
CS: Artemis Silver Fund employs a top-down approach and is research-intensive. We take the universe of silver mining equities and filter them by a number of criteria. We then narrow down the field by research, with the help of a proprietary system we developed for valuing mining companies.
Attractive companies are then analysed further by looking at each company's ability to generate superior growth in cash flow and earnings in the projected economic environment, the quality of management, its historical record, its country risk, the company's position within its peer group, the strength of its balance sheet, and future near-term news flow. A short list of superior companies are then put on a watch list, where technical analysis determines favourable entry points.
HW: How do you generate ideas for your funds?
CS: We attend mining and precious metals conferences and spend a fair amount of time doing basic research on the companies we're interested in. At the mining conferences we see new silver mining companies come up all the time. While many of these are too early-stage for us to be interested in, some will develop over time and become good candidates for investments by the fund. We have seen this happen with several companies we invest in.
HW: What is your approach to managing risk?
CS: Because silver is such a small market, it tends to be quite volatile - more so than gold. While this presents trading opportunities, risk management becomes a vital aspect of the Silver Fund's trading strategy.
In addition to a diversified portfolio and limited capital allocation per position, we are big believers in capital preservation. We try to manage risk at the individual security level through stop-losses, and the fund utilises a profit-taking mechanism to ensure that profit objectives are realised.
The fund will normally not employ any leverage, although we will do so in limited situations when the risk/reward is clearly in our favour. We short silver only through buying put options on silver contracts. We do so to reduce market risk against our long positions, not for positive performance.
HW: Has your performance been as per budget and expectations? Do you expect your performance or style to change going forward?
CS: The managed accounts on which we have based the fund have delivered on average more than 50 per cent per annum over the past five years. We expect the performance to continue for many years, as the price of silver moves up.
HW: What opportunities are you looking at right now?
CS: Currently we are looking at a few silver mining companies in Mexico that have flown under the radar thus far. We are also looking at other mining companies that have substantial silver exposure, but have not marketed themselves as silver mining companies.
HW: What events do you expect to see in your sector in the year ahead?
CS: We see growing investor awareness of the silver mining sector, especially as it has outperformed gold recently, and more interest in silver investments and in silver bullion itself. We also see a trend of consolidation within the silver mining industry in the next few years. Silver producers will seek to expand their resource base through acquisition rather than exploration.
HW: How will these developments events impact your own portfolio?
CS: We will have to monitor events in the silver industry continually as they unfold. One of our advantages is the relationships we have built with people in the industry over the years. They have been instrumental in keeping us abreast of current events in the silver mining world, as well as leading us to new opportunities. As new situations arise, we are poised to take advantage of them.
HW: What differentiates you from other managers in your sector?
CS: To be honest, I am not aware of many other managers that focus solely on the silver sector. What mainly differentiates Artemis Silver Fund from other silver analysts we know is that we have a very close relationship and contact with key professionals in the silver market and mining companies. We believe that keeping this status is vital to our success in identifying the right opportunities for the fund and our investors.
In addition, we have developed over the years our own proprietary resource valuation model to determine better the composition of our silver equities holdings. Finally, we employ short strategies to hedge against downside volatility - perhaps once or twice a year we will short spot silver using put options to a value of between 5 and 10 per cent of the fund's assets under management. Others may use a long-only strategy.
HW: Do you have any plans for further product launches in the near future?
CS: Not now, but we may in a few years.
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