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Number Cruncher

Gold equity funds: A bumpy ride over five years Add to ...

What are we looking for?

Given how mining stocks have been struggling in recent times, let’s see how precious metals equity funds have fared over five years (which will include the financial crisis).

The screen

We looked at funds with a five-year track record ended Feb. 28, and their annual returns. U.S. dollar, segregated and duplicate versions of the funds were excluded.

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What did we find?

Only one fund, Sentry Precious Metals Growth, has some shine left.

It was the only money-maker, eking out an annualized gain of nearly 2 per cent. The five-year records of all funds don’t reflect the fact that the asset class had some stunning returns in 2009 and 2010 when their stocks snapped back after the financial crisis. The obvious lesson is that investors need to take some profits in this volatile sector during the good years.

Precious metal funds own mainly gold miners whose stocks are influenced by the price of the metal, which has fallen to the $1,550 (U.S.)-an-ounce range from more than $1,900 last September. But gold stocks have also been challenged as miners face rising costs for energy, labour and lower grades for the metals, says Kevin MacLean of Sentry Investments, and lead manager on Sentry Precious Metals Growth.

The manager said his fund has managed to outperform its peers partly because it has been more conservatively run in recent years. After the asset-backed commercial paper debt crisis in 2007, Mr. MacLean reduced the exposure to miners needing capital, such as the advanced exploration companies. “We are very focused on looking at the companies that can survive this downturn in the gold price and sentiment,” he said.

Mr. MacLean owns names like Alamos Gold and Argonaut Gold, which are financially strong and are well run, low-cost producers. He has also been adding to positions in mining royalty companies such as Silver Wheaton and Sandstorm Gold, and bought a new name, Premier Royalty. These companies, which finance mining projects in exchange for a royalty on future production, “tend to be the safest names in this environment,” he said. “We are looking for the least risky ways to make money in the gold sector.”

 

How precious metals equity funds have fared over five years to Feb. 28

Fund Symbol 5-yr
% rtn
(Feb. 28)
3-yr
% rtn
(Feb. 28)
Sentry Precious Metals Growth 1.7% 0.3%
RBC Global Precious Metals 0.0% -1.6%
Altamira Precious & Strategic Metal -2.1% -3.0%
BMO Precious Metals -3.9% -3.7%
AGF Precious Metal -4.3% -3.8%
Dynamic Precious Metals -5.0% -10.5%
Sprott Gold and Precious Minerals -5.3% -6.4%
iShares S&P/TSX Global Mining Index Com ETF CMW-T -5.6% -4.3%
Mackenzie Univ World Prec Metal Class -6.3% -3.7%
iShares S&P/TSX Global Gold Index ETF XGD-T -6.5% -7.1%

Source: Lipper

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