Fund managers don’t normally have to argue for their place in investors’ portfolios after a vintage year, but that’s the situation some in the Precious Metals Equity sector find themselves in after a rip-roaring 2016.
Funds in the sector bounced back spectacularly last year after a five-year stretch of finding themselves firmly out of favor.
The one-year return figures in our table, covering the 12 months to the end of January, are testament to that, with the EuroPac Gold fund having doubled investors’ money over the period.
That was powered by a resurgent gold price. Investors fled to the safe haven at the beginning of 2016 as fears over China’s slowdown and a global recession gripped investors. Those worries abated, but precious metals found a new batch of buyers in the summer, as the UK’s vote to leave the European Union sent fresh shockwaves through markets.
With Donald Trump’s shock election as US president, the stage was set for gold to consolidate its gains and end the year on a high. Except it didn’t play out like that.
Investors got over their fears of a Trump presidency remarkably quickly, with markets instead focusing on the growth that could be spurred by his tax-cutting and infrastructure plans. The bullishness that followed spelled bad news for gold, with the precious metal ending the year just 8.6% higher, a far cry from the heights it reached in the summer.
Top 10 precious metals equity managers over three years
|Rank||Manager||Total Return (%)||3-year manager ratio*|
|1 year||3 years||5 years|
|3/23||Caesar M.P. Bryan||69.1||26.4||-40.7||0.4|
Returns from funds in the Precious Metals Equity sector were much higher. Most of these funds invest in precious metals miners, which can amplify gains and losses from metal prices, especially if they are at the smaller end of the market-cap spectrum.
Miners with high costs or heavy debts can enjoy a rapid expansion in profitability and cash flow generation far outpacing the underlying rise in precious metal prices.
Look to the best performing fund over three years, US Global Investors Gold & Precious Metals, and it’s the smaller miners that have been leading the way over the past year. Managers Frank Holmes and Ralph Aldis devote around two-thirds of their portfolio to these smaller stocks with a market cap below $1 billion.
Top 10 holding Jaguar Mining, with a market cap of just over $150 million, is up more than 260% over the past 12 months, while $457 million Wesdome Gold Mines rose 118%.
But with the bullishness surrounding the Trump presidency, gold’s safe haven status may have waned among some investors. That would be a mistake, according to Greg Orrel, manager of the OCM Gold fund, up 67.1% over the past year.
‘Although the euphoria surrounding a pivot from past policies may be warranted, we think the potential for disappointment remains high,’ he said in the fund’s latest annual report.
‘In our opinion, the challenges facing the Trump administration remain daunting and are ripe with political and systemic financial risk, and reinforce the need for investors to establish and maintain a position in gold assets as part of a diversified portfolio.’