How equity funds that invest in gold, silver and other rare metals have performed in the past year.
We looked at the best-performing precious metals equity funds for the year ended Jan 31. U.S. dollar, segregated and duplicate versions of the funds were excluded, as were those with minimum investments of more than $25,000.
What did we find?
It was a losing year for precious metals funds, but there could be a glint in gold assets in the coming year.
“We’re now at a stage where we see some glimpse of stabilization, but we’re nowhere near the recovery levels expected after the liquidity crisis in 2008. So quite a bit uncertainty here,” said Ani Markova, lead portfolio manager of AGF’s precious metals fund.
All the funds in the screen lost money in the year to Jan. 31, as a 25 per cent drop in gold prices weighed on performance. Many funds in this space have major investments in the yellow metal through producers or bullion.
The economies of Europe and the United States now seem to be stabilizing, but investors still face an uncertain investing environment stemming from emerging markets and eastern European currency and geopolitical crises.
The Blackrock iShares S&P/TSX Global Mining ETF posted the best return of the year with a loss of 12.7 per cent. AGF’s fund lost 31.9 per cent in the one year term.
Last year there was a major selloff in gold, the industry where AGF fund has half of its assets. “We saw gold [start to stabilize] in and around $1,200,” Ms. Markova said. “And that happens to be around the cost of production of gold.”
Gold companies are now adjusting business plans and taking a more conservative view of future gold prices, resulting in many asset writedowns, staffing cuts and projects put on hold.
Gold stocks may have a better chance of outperforming bullion this year because valuations are so compressed, and expectations are very low, Ms. Markova said.
Many major gold companies have new management teams in place, and many of these leaders come from the financial side of the business, focused on profitability and economics, Ms. Markova said. “This time around I’m hoping the cost controls and focus on running the business will be front and centre, and that will drive returns for shareholders.”
Ms. Markova looks for quality assets run by experienced management teams, as exemplified by core holding Tahoe Resources Inc. The silver miner can still generate cash flow even if the silver price falls further, she said, and the stock should pay dividends as production ramps up. The company is run by former Goldcorp Inc. chief executive Kevin McArthur.
Top 15 precious metals equity funds
* Assets as of Dec. 31, 2013. “m” stands for “maximum” (it’s a new fund). Source: Lipper. Data compiled by Wei Sun