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Gold medal returns

Precious-metals funds come through as others falter


Equity funds that invest in gold and precious metals emerged as one of the few bright spots in January's turbulent markets.

Precious-metals funds jumped an average of 12.4 per cent last month as the price of gold soared. The category's one-year gain stands at an eye-popping 41.3 per cent.

Meanwhile, most other fund categories were flat or down. The slow global economy, weak corporate profits, low interest rates and investor fears about sketchy accounting in the wake of the Enron Corp. scandal hurt broader equity markets and solidified gold's status as a safe haven.

At the same time, low interest rates have made gold hedging by mining companies and funds less profitable. The margins have shrunk in that business, which involves borrowing gold, raising cash by selling it and reinvesting the proceeds to make a profit. As a result, many of the big producers are unwinding their hedge positions, which means they are buying gold.

As the metal price rose, so did gold producers' stocks and the funds that hold them.

In Canada, the Toronto Stock Exchange gold and precious minerals index advanced 12 per cent in January. That compares with a 0.5-per-cent slide for the TSE 300-stock composite index.

Among the big movers in the precious-metals category last month, the $400,000 Cambridge Precious Metals (Sagit) Fund jumped 23.2 per cent, the $162.1-million Royal Precious Metals Fund added 21.3 per cent and the $34.5-million AGF Precious Metal Fund rose 16.9 per cent.

Other winners included the $14.3-million Sprott Gold and Precious Minerals Fund, with a 16-per-cent gain, the $65.2-million Mackenzie Universal Precious Metals Fund, which added 14.9 per cent, and the $4.4-million StrategicNova World Precious Metals Fund, which gained 14.3 per cent.

John Embry, portfolio manager of the Royal fund, said gold stocks will likely see some corrections in the weeks ahead after the price of gold recently climbed above the psychologically important level of $300 (U.S.) for the first time in two years.

But Mr. Embry plans to keep buying gold in the dips because he believes the metal is back in favour as a safe harbour.

During the past two decades, bullion lost much of its appeal as investors put money into stocks and bonds.

January's worst-performing sector was Japanese equity funds, which plummeted an average 7.9 per cent, sending their one-year average loss to 32.2 per cent.

Japanese investors have also been buying gold this year as concerns mount over the value of the yen, the Japanese stock market and a planned reduction on insurance protection for savings accounts.

Canadian equity funds declined an average of 0.5 per cent last month, bringing the one-year loss for the group to 6.9 per cent.

The winners included the $900,000 (Canadian) University Avenue Canadian Fund, which gained 10.7 per cent, the $700,000 Trans-Canada Value (Sagit) Fund, up 8.8 per cent, and the $223.7-million Mackenzie Growth Fund, which rose 7.1 per cent.

Underperforming Canadian equity funds included the $77.6-million Synergy Extreme Canadian Equity Fund, down 5.2 per cent, the $1.7-million Floyd Growth Fund, down 4 per cent, and the $1.2-million Fallingbrook Growth Class A, down 4.4 per cent.

Canadian large-cap equity funds fared even worse, with an average drop of 1.1 per cent. That brought their average loss for one year to 10.2 per cent.

The top performer was the $2.4-million Mavrix Canadian Value Fund, which gained 1.7 per cent. The $264.9-million O'Shaughnessy Canadian Equity Fund rose 1.1 per cent and the $557.2-million Spectrum Canadian Investment Fund increased 1 per cent.

Among specialty funds, the health-care category was hard hit, with a 6.2-per-cent drop. The one-year loss for the group now stands at 9.5 per cent.

Even the top performers lost ground in January. The $24.8-million BMO Global Health Sciences Fund gave up 1.3 per cent, the $734.4-million Talvest Global Health Care Fund dropped 2.3 per cent, and the $10.5-million Mackenzie Universal Health Sciences Capital Class lost 2.8 per cent.

Science and technology funds gave up 3.3 per cent on average in January, to bring their one-year average loss to 42.7 per cent.

The $2-million Northwest Specialty Innovations Fund jumped 4.9 per cent, the $150.6-million StrategicNova Canadian Technology Fund advanced 3.9 per cent, and the $1.6-million Sentry E. Commerce and Internet 99 Fund added 1.6 per cent.

Assets over $50-million, ranked by one-month returns to Jan. 31
Top 10 funds

                                  Assets     One-month     One-year

Fund                              ($'000)       return        returnRoyal Precious Metals            $162,086      +21.3%       +62.0%

Mackenzie Univ Precious Metals     65,152      +14.9        +65.0

iUnits S&P/TSE Canadian Gold       75,121      +13.8           -

TD Precious Metals                 76,548      +13.4        +47.6

Dynamic Cdn. Precious Metals      109,205      +13.4        +64.3

Sprott Hedge L.P                  159,608      +12.3        +78.2

Sprott Canadian Equity             98,970      +11.9        +42.5

Mackenzie Growth                  223,650       +7.1        +34.2

StrategicNova Canadian Small Cap  157,073       +6.7         -6.5

TD Asian Growth                    71,459       +6.1         +2.7

Bottom 10 funds

CI Global Biotechnology Sector   $163,088      -13.4%       -14.8%

CI Global Biotechnology RSP       142,034      -13.2        -15.1

TD Entertainment & Communications.210,902      -11.1        -26.1

AIM RSP Global Telecommunications  51,787      -10.3        -60.0

AIM Global Telecommun. Class      280,186      -10.3        -59.7

Trimark RSP Discovery             184,930       -9.6        -35.1

Clarica SF Trimark Discovery       52,213       -9.6        -34.9

Trimark Discovery                 485,033       -9.5        -34.3

Altamira Health Sciences          137,012       -9.4        -10.2

AGF Japan Class                    83,917       -9.3        -34.4

© 2007 The Globe and Mail. All rights reserved.

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