Faircourt Asset Management CEO on Ninepoint Alternative Health Fund’s 17.5% Growth in 2018

Faircourt Asset Management and Ninepoint Alternative Health Fund CEO Charles Taerk describes how his fund outperformed other names in the cannabis space. The Ninepoint Alternative Health Fund was up 17.5 percent in 2018, despite extreme volatility in the cannabis industry. Taerk indicates this is the result of an actively managed fund, as fund managers can move holdings to cash, take profit for clients, and preserve agility, which consequently lower volatility. He discusses the Green Growth Brands Ltd (CNSX:GGB) (OTCMKTS:GGBXF) bid to takeover Aphria Inc (TSE:APHA) (NYSE:APHA) (FRA:10E). He believes companies are increasingly going to be judged on cash flow, but cautions that earnings will not be as robust in the first few months of 2019 as some expect. He warns investors to remain patient when it comes to investing in the cannabis space.

Transcript:

Fraser Toms:  Joining me now in the studio is one of our favourites – Charles Taerk, who’s the CEO of Faircourt Asset Management and UIT Funds. Charles, how are you doing?

Charles Taerk: I’m great, thanks for having me on

Fraser Toms:  No problem. So right away, let’s talk about the performance in 2018 which for some, like myself, was pretty rocky and not very fun. But let’s talk about Faircourt and how you did.

Charles Taerk: Sure. So the fund we manage in the cannabis sector is called the Nine Point Alternative Health Fund and we’re the portfolio advisors. This is Canada’s first actively managed mutual fund; it’s coming up on our second anniversary, so we’re two years into this, and 2019 was a, you know, ground-breaking for many factors. Obviously legalization and many countries legalizing for medical purposes.

Performance was rocky. We’re very proud of our performance; for 2018, our annual number was about 17.5 percent. And what’s interesting about that is when you compare our performance to the indexes of a passive strategy, so HMMJ was down close to 20 percent for the year. So we’re up 17.5, HMMJ is down 20. So active management to us is really important. Being able to go to cash, being able to move positions, being able to trade and being able to take profit. I think that was, you know, one of the big lessons of 2018, and you know, just being able to be agile. I think that’s really what we’re able to do.

I was saying just before we came on the air, there were three times during 2018 when the cannabis sector was up more than 25 percent, and there were also three periods when the cannabis sector was down more than 25 percent. So that’s a lot of volatility for investors. You really have to put on your seatbelt and feel comfortable with that level of risk, and I think that’s what we provide as fund managers: We’re lowering the volatility for investors as they make an investment in the cannabis sector.

Fraser Toms:  Yeah, I mean, last year, I think a lot of  people might have been like this too, but I was just waiting for things, okay, no, it’s going to pick up, and it just kept – you know, there,, were just these periods of just sort of like way more downside than I think anyone could have expected.

Charles Taerk: And then they abruptly changed direction. And we often last year were talking to people about when was the best time for them to invest, and we would say, look: as the market is weakening, that’s the time when you should be investing. Not because it’s selfish and you should get into our fund or into an ETF

So back in August, the market was weak, that’s when Constellation invested in Canopy; in December, you got the Altria deal with Cronos and it’s when, you know, Tilrray announced their big deals with Novartis and AB Inbev. Those are strategic investment periods. So you don’t want to wait too long and get too cute to, you know, call the bottom. You want to get in when you believe that there’s relative value.

Fraser Toms:  Yeah. And so well, getting in December would have been good because January has been a great month so far.

Charles Taerk: Yeah, it’s been, and the broader equity markets across North America have responded positively getting into the new year, and I think the psychology at the end of the year was pretty rough. So January has been a different month.

Fraser Toms:  And you look at the broader markets, as well?

Charles Taerk: Yeah, Faircourt has many different mandates. We’ve got everything from gold equities fund to North American equities broadly diversified, and then this is a specialty product for us.

Fraser Toms:  Okay, and then in terms of announcements or pressers and things of that nature, what has sort of got your attention the most? What are you looking at?

Charles Taerk:     Well, you know, I just mentioned the strategic investments at the end of December, that was very noteworthy, and I think then shortly after that was hostile takeover being announced. This is unique, because this is US company listed on CSE, Green Growth Brands, making a hostile takeover for Aphria. And I think we all know the story there: Aphria was doing quite well, but got in the crosshairs of a short seller report at the beginning of December, and it really hasn’t recovered to its full strength. There’s still some questions about the transactions that they’ve done internationally. And so it’s an opportune time for someone to step in.

Fraser Toms:  Yeah. Well, as we were saying too, some of the revenue numbers that are going to be popping up are just going to grow larger and larger and larger, so that’s a transition maybe as well is looking at things like EBITDA as opposed to just funded capacity or other –

Charles Taerk: Oh absolutely. I think we saw this in November and December with the most recent quarters that came out. The companies in this sector are going to increasingly going to be analyzed by their bottom line results, by earnings, cash flow. And we saw in November, it was a great example, because five or six companies came out in one week, all with disappointing quarterlies; and then CannTrust came out on the Thursday of that week, I believe, and they were the only ones that had a positive quarter.

These were all quarters that ended prior to legalization, so it was mostly all medical, but the point was that investors are getting impatient with the bottom line results. And actually we see some further weakness that people can anticipate for the first 3-6 months of this year, because we’re playing delay with the quarters. But given that in Canada, at least, you’ve got a delay in the number of stores that are being rolled out by the provinces, you’ve got production issues with ramp-up that are slower than anticipated – so the earnings, both revenue bottom line earnings, are not going to be as robust as previously planned.

So you’ve got to make some adjustments to your portfolio and look for opportunities where you really believe in the company, you do your due diligence, you look at management, you see what the long term is, and you know, be prepared to be patient.

Fraser Toms:  Yeah. Okay, great, Charles, if somebody wants to get involved in your fund, what do they do?

Charles Taerk: So this is a mutual fund, it’s called the Nine Point Alternative Health Fund. The fund code is, well depending on whether you want A class or the F class, the A class is MPP5420. And then you can see the other codes from there. But that’s what we’re up to.

Fraser Toms:  Okay, great. Well, thanks for coming in again, Charles; I hope you come back soon. It’s been way too long since the last time you were in.

Charles Taerk: My pleasure. I’d love to be on soon, too.

Fraser Toms:  Great.

Original article: Faircourt Asset Management CEO on Ninepoint Alternative Health Fund’s 17.5% Growth in 2018

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