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Are precious metals prices boosting funds?

swon@globeandmail.com

WHAT ARE WE LOOKING FOR?

Whether bullion or precious metals stock funds are shining the brightest so far this year.

With gold futures surging to a 10-week week high of $946.50 (U.S.) an ounce in New York this week before easing off, it's time to check out the precious metals sector.

August gold yesterday closed at $933.60, down from a record high of $1,034 an ounce in March. But some market observers suggest the yellow metal could retest and blow through the $1,000-level again later this year, partly on inflation fears and investors seeking a "safe haven" in uncertain times.

TODAY'S SEARCH

We looked at the year-to-date returns of precious metal funds, which typically hold mostly gold company stocks. We also examined their annual returns over the previous five years because this sector can be volatile. Funds with less than a one-year track record, and other versions of the same fund were excluded.

Because Globefund's precious metals funds category only includes those with at least a 90-per-cent weighting in stocks, we added BMG BullionFund from the miscellaneous section. This mutual fund invests equally in gold, silver and platinum bullion, which is stored in a bank vault.

SO WHAT DO WE TURN UP?

BMG BullionFund, formerly known as Millennium BullionFund, has been the leader by a wide margin for the first six months of this year with a 22.5-per-cent return. It has benefited from surging prices of platinum and silver, which have outperformed gold.

"Bullion and mining stocks are two different animals completely," says Nick Barisheff, president of Toronto's Bullion Management Group Inc., which runs BMG BullionFund.

Despite rising commodities prices, stocks of miners don't always track the metals prices. During market downturns, mining stocks can come under selling pressure as portfolio managers sell their winners to take profits or to raise cash for redemptions.

Mining stocks also have exposure to "political risk" if they operate in foreign countries and are affected by changes in government or policy. And profits can be affected by rising operating costs like the soaring price of oil.

The iShares Canadian Gold Sector exchange-traded fund, meanwhile, was the second-best performer with a 14.5-per-cent gain. The ETF, which once tracked the S&P/TSX's subindex of Canadian gold stocks, switched in December, 2006, to replicate the newly created S&P/TSX Global Gold Index.

The best performing mutual funds in the first six months were RBC Precious Metals run by Chris Beer and TD Precious Metals led by Margot Naudie. They, respectively, gained 5.3 per cent and 5 per cent.

If metals prices continue to climb, it might not hurt to have some bullion in your portfolio as a diversifier. Even Sprott Gold and Precious Minerals Fund, which tends to invest in smaller-company stocks and has been lagging more recently, has 9 per cent of its assets in silver bars.

Precious Metals Funds

As of May, '08Annual returns
AssetsMERYear to20072006200520042003
Fund name($million)%June 30, %%%%%%
BMG BullionFund-A183.53.2422.52%2.54%24.52%12.51%-3.97%-2.84%
iShares CDN Gold Sector Index958.90.5514.46%-4.48%40.75%21.72%-8.93%13.81%
RBC Global Precious Metals787.82.075.33%9.04%52.40%25.28%-17.30%65.15%
TD Precious Metals243.82.174.97%4.64%49.39%26.80%-15.07%30.72%
Dynamic Precious Metals481.12.784.42%5.60%62.67%26.26%-24.43%52.33%
Altamira Precious & Strategic Metal58.82.662.69%-2.39%42.73%13.08%-12.62%67.09%
AGF Precious Metal615.32.60.14%6.73%63.91%19.39%-7.95%64.45%
Mackenzie Univ Precious Metals472.32.420.12%6.57%49.18%26.84%-20.50%30.78%
Mackenzie Univ Wld Prec Metal Class113.32.510.01%7.63%53.82%30.13%-19.38%31.38%
CIBC Precious Metals132.42.37-2.09%6.59%58.16%25.26%-15.63%57.96%
BMO Precious Metals822.37-3.02%3.32%46.83%24.83%-19.20%2.44%
Sentry Select Precious Metals Grwth291.92.66-5.00%9.73%74.04%35.27%-11.34%24.45%
Sprott Gold and Precious Minerals545.52.82-6.93%-16.43%56.19%16.29%-18.76%72.43%

DOUGLAS COULL/THE GLOBE AND MAIL

SOURCE: GLOBEFUND.COM

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