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Precious metals glitter

Funds jump on soaring gold price

INVESTMENT REPORTER

Equity funds that invest in precious metals charged ahead again in December as the price of gold soared.

The category's funds jumped an average of 23.8 per cent last month to bring their average one-year gain to 76.2 per cent.

The price of gold, which is viewed as a haven in times of trepidation, hit five-year highs last month as investors feared a U.S.-led attack against Iraq and a revival of North Korea's nuclear weapons program.

At the same time, the U.S. dollar weakened against the euro and the yen, and U.S. equities fell, making the precious metal more attractive as an alternative investment.

Early in the month, Merrill Lynch & Co. Inc., the world's largest brokerage, also enhanced gold's allure when it advised clients to reduce their U.S. stock holdings.

Among top performers in the category last month, the $317.3-million Royal Precious Metals Fund soared 37.5 per cent, the $101.5-million AGF Precious Metals Fund climbed 29.2 per cent and the $92.7-million Sprott Gold and Precious Metals Fund advanced 28.4 per cent.

The $46.4-million Altamira Precious & Strategic Metal Fund rose 26.4 per cent, the $230.2-million iUnits S&P/TSE Canadian Gold Fund added 26.4 per cent and the $107.3-million TD Precious Metals increased 26 per cent.

John Embry, portfolio manager for the Royal fund, said he built its portfolio on his strong conviction that the gold price would rise.

In Mr. Embry's opinion, the U.S. stock market looked vulnerable, and the U.S. dollar was "an accident waiting to happen."

He also thought the economy south of the border was in worse shape than the consensus opinion of it. Meanwhile, the financial community was speculating that governments might move to stave off deflation -- which could in turn spark inflation. "This is the ideal climate for gold."

As a result, Mr. Embry loaded up on shares of smaller players with developing ore bodies and relatively cheap stock prices.

Since investors had been ignoring smaller names, Mr. Embry reaped the benefit when the gold price started to rise and those beaten-down stocks were suddenly back in favour. "There was a revaluation because [the shares] were really cheap."

Meanwhile, Mr. Embry eschewed shares of producers whose hedging strategies forced them to sell gold at a previously locked-in price and therefore miss out on much of the metal's rise.

Those big, blue-chip companies had also already had a good run in their stock prices so they did not offer the same upside, he noted.

Meanwhile, science and tech funds were December's biggest losers, down an average 11.6 per cent. The group's average loss for one year hit 41.4 per cent.

A rare bright spot was the $2.4-million Tera Capital Global Technology Fund, which gained 7.2 per cent. But the $1.8-million RBC Advisor Global Infrastructure Class slipped 1 per cent and the $2-million Northwest Specialty Innovations Fund dipped 3.6 per cent.

The S&P/TSX composite index spent December treading water to end the month with a paltry 0.7-per-cent gain.

Canadian funds that invest in large-capitalization stocks were also flat last month, eking out an average 0.1-per-cent rise. Over one year, the category lost an average 13.6 per cent.

The $2-billion AGF Canadian Dividend Fund rose 2.7 per cent, the $33.5-million Elliott & Page Value Equity Fund edged up 2.2 per cent and the $1.3-million Co-operators Canadian Core Equity Fund added 2 per cent.

Canadian equity funds slipped an average of 0.1 per cent in December to bring their average loss for one year to 12 per cent.

The $179.8-million Sprott Canadian Equity Fund gained 7.9 per cent, the $2.2-million MIX E&P Growth Opportunities Class Fund rose 5.2 per cent and the $222.2-million ABC Fundamental Value Fund added 4.7 per cent.

In the United States, the Standard & Poor's 500-stock index and the Dow Jones Industrial Average recorded their worst Decembers since 1931, with both down about 6 per cent on the month.

Funds that invest in U.S. equities fell an average of 5.3 per cent to bring their downturn for one year to an average of 24.3 per cent.

The $29.2-million ABC American-Value Fund rose 4.5 per cent, the $13.9-million AIC American Focused Plus Fund edged up 1.5 per cent and the $800,000 University Avenue Growth Fund added 0.8 per cent.

Also dragged down by U.S. markets were international equity funds, which dropped an average of 4 per cent in December. The category's average loss for one year reached 20.7 per cent.

The $1-million Investors International Small Cap Class Fund rose 0.5 per cent, the $91.6-million Trimark International Companies added 0.4 per cent and the $153.8-million Mawer World Investment slipped 0.7 per cent.

Funds that invest in natural resources won in December, up an average 7.9 per cent. The group posted a one-year average gain of 14.2 per cent.

The $27.9-million EnerVest Natural Resources Fund Ltd. jumped 25.5 per cent, the $10.5-million DeltaOne Energy Fund LP gained 23.1 per cent and the $40-million StrategicNova Canadian Dominion Resource increased 16 per cent.

Latin American equity funds also ended December in positive territory, gaining an average 2.6 per cent. That trimmed one-year loss to 23.3 per cent.

The $4.4-million CIBC Latin American Fund rose 9.7 per cent, the $19-million Fidelity Latin America-A gained 3.4 per cent and the $3.9-million StrategicNova Latin America increased 2.8 per cent.

Funds that invest in Canadian small-capitalization equities rose a slim 2 per cent, on average, last month. The average one-year drop for the category was 2.7 per cent.

The $70-million Northwest Specialty Equity Fund rose 6.4 per cent and the $16.5-million R Small Cap Canadian Equity gained 5.6 per cent.

© 2007 The Globe and Mail. All rights reserved.

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