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Mutual Fund News

Not every manager leads investors to pot of gold

INVESTMENT REPORTER; SOURCE: GLOBEFUND.COM

Having a sprinkling of precious metals in a mutual fund portfolio is often a good idea, analysts say, but not every manager is going to lead investors to a pot of gold.

"It's a tough sector," said James Gauthier, an analyst at FundMonitor.com. "People make a ton of money for a while," he said, but the downturns can be just as dramatic.

Mr. Gauthier recommends looking for a fund manager with a long, solid history of outperformance.

He points to Frederick Sturm, manager of the $101.1-million Mackenzie Universal Precious Metals fund, as "a resource guru." The portfolio manager also oversees the Maxxum Precious Metals fund and Mackenzie's resource fund lineup.

"[Mr.] Sturm really does have an awesome track record," Mr. Gauthier said.

For the three years ended April 30, the Mackenzie Universal Precious Metals leads the category, with a 33.8-per-cent average annualized return. The fund's one-year return to April 30 is 89 per cent.

The analyst said Mr. Sturm looks for companies that have smart management, trophy assets, global exposure and a stock that trades independently of the commodity price.

He notes that the fund contains a great deal of foreign content and a mix of large, medium and small-capitalization companies.

Mr. Gauthier also likes the $135.9-million Dynamic Canadian Precious Metals fund, whose Goodman & Co. portfolio managers have produced a one-year gain of 79.5 per cent to April 30.

He notes that the fund's managers look for stocks that they like, regardless of their weighting in the index. While Barrick Gold Corp. and Placer Dome Inc. have hefty market weightings, for example, the two stocks do not appear in the top-10 holdings of the Dynamic fund.

For investors who want to boost the foreign content in their portfolios, Mr. Gauthier recommends the $19.9-million Dynamic Global Precious Metals fund, which is also managed by the Goodman team.

Another of Mr. Gauthier's top picks is the $97.1-million TD Precious Metals Fund. Manager Margot Naudie has posted a one-year return to April 30 of 65.3 per cent for the no-load fund. Mr. Gauthier likes Ms. Naudie's ability to assess a firm's asset quality, management, political and technical risk, and ability to finance growth. She also takes into account a stock's valuation, and the outlook for the commodity price, he adds.

Dan Hallett, analyst at Sterling Mutuals Inc. in Windsor, Ont., also likes the Mackenzie Universal Precious Metals fund and Mr. Sturm's knack for shifting his holdings between different metals to produce better returns.

He said Mr. Sturm is not afraid to significantly lower his weighting in gold and go into other metals such as platinum and palladium, for example, if he thinks those prices are likely to rise.

The analyst points out that, while most precious metals funds were under water between 1997 to 2000, Mr. Sturm managed to make money during that period.

Mr. Hallett also recommends the $236-million Royal Precious Metals Fund, which tops the category for the year to April 30 with a 110.8-per-cent surge. The fund, which is managed by John Embry, also boasts the best 10-year record, with a 14.1-per-cent annualized return.

"He really likes to find companies whose stock prices don't reflect what he sees as the sustainable price of gold," Mr. Hallett said.

Mr. Hallett added that Mr. Embry has done a good job in recent years of buying stocks during pullbacks, then taking advantage of the rallies to outperform the index.

The analyst warns that investors should have no more than 5 per cent of their portfolios in precious metals.

"This sector is just so, so volatile," he said. "By the time a lot of people jump in, they've missed most of the upside."

Similarly, Mr. Hallett notes that precious metals funds struggled through much of the 1990s, and many investors who did buy in when prices were low may have given up waiting for a turnaround.

"The droughts have been quite long and I imagine a lot of people didn't stick around to capture the gains that we've seen."

Mr. Hallett recommends that investors use the upswings to take some money off the table. If the precious metals portion of a portfolio swells beyond 5 per cent with the runup in the sector, for example, trimming those holdings back to 5 per cent is a prudent way to lock in some of those gains.

PRECIOUS METAL FUNDS

As of April 30, 2002

Fund Name.................................YTD....1yr. rtrn....3yr. rtrn

AGF Precious Metal........................58.9%.....76.4%.......16.3%

Altamira Precious & Strategic Metal.......47.0......59.8.........8.5

BMO Precious Metals.......................44.1......70.1........21.0

Cambridge Prec. Metals (Sagit)............58.9.......7.2.......-15.4

CIBC Precious Metals......................35.7......55.6.........7.8

Dynamic Canadian Precious Metals..........47.9......79.5........17.0

Dynamic Global Precious Metals............43.9......74.3........16.8

FCMI Precious Metals Fund Inc.............11.0......20.1.........2.2

iUnits S&P/TSE Canadian Gold..............32.1......58.3..........-

London Life Prec. Metals (MX).............46.2......72.6........16.8

Mackenzie Univ Precious Metals............54.1......89.0........33.8

Mackenzie Univ Precious Metals US$........56.5......85.1........30.5

Mackenzie Univ Wld Prec. Metals Cap.......40.6......77.0..........-

MAXXUM Precious Metals....................46.4......73.2........16.9

Quadrus (MX) Precious Metals..............46.6......73.4........16.9

Royal Precious Metals.....................77.5.....110.8........23.2

Sentry Precious Metals Growth.............27.8......40.5.........5.0

Sprott gold and Precious Minerals.........74.9....... - ......... -

StrategicNova World Prec. Metals..........54.1......65.2.........7.9

TD Precious Metals........................44.4......65.3........18.8

© 2007 The Globe and Mail. All rights reserved.

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