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Precious metals funds shining despite turmoil


Precious metals funds glittering so far this year.

While they were deep in red ink in 2008, these funds - which hold mostly gold company stocks - were the best performing category last month with a 5-per-cent gain. And these funds have kept climbing despite market turmoil.

This group, which can move opposite to stock markets as it did during the bear years of 2001 and 2002, is getting a lift with the surging price of gold and other metals. Gold yesterday closed at $911.35 (U.S.) per ounce.


We ranked the year-to-date returns of precious metal funds until this past Thursday. We excluded those denominated in U.S. dollars. However, we included BMG BullionFund from the miscellaneous group. Unlike precious metals funds, which own mostly stocks, the BMG fund holds only gold, silver and platinum bullion.


A lot of irony.

Sprott Gold and Precious Metals - the worst performer in 2008 with a 50 per cent loss - was at the top of the performance heap with a gain of nearly l6 per cent.

And iShares Canadian Gold Sector exchanged-traded fund - last year's star with a 1-per-cent gain - was at the bottom of the pile with a 2-per-cent return until Thursday.

So what gives?

Sprott Gold and Precious Metals was in transition last year as its new co-managers Charles Oliver and Jamie Horvat changed it from having a mostly smaller-company focus to an all-capitalization fund. The pair used to run AGF Precious Metals with Mr. Oliver at its helm officially from 2002 to the start of 2008.

The Sprott fund suffered badly last year because of its large exposure to battered small-cap stocks last fall. But the small-to mid-cap stocks, which represent about two-thirds of the fund now, "were oversold" and are now doing well" as more investors see buying opportunities and are climbing onboard, Mr. Oliver said. "The valuations were ridiculously cheap."

The manager, who has been projecting gold at $2,000 an ounce within three years, is betting the yellow metal will surge above $1,000 this year as the U.S. government is "printing money" to stimulate the economy during this credit crisis. "You are basically devaluing your currency," he says.

Kevin McLean's Sentry Select Precious Metals Growth Fund, which gained nearly 14 per cent, also had a substantial chunk in junior miners.

When precious metals funds are hot, "it's usually the small and mid-caps that add the alpha," while the large-company oriented iShares ETF can underperform," Mr. Oliver says.

Precious metals funds are not for the faint of heart. When they are on fire, history indicates they can provide off-the-chart returns. Just take profits before the party is over.

How precious metals funds are faring so far this year

(as of Dec. '08)Latest(as of Feb. 5)(as of Jan. 31)% returns
Fund nameAssets ($-mil)MERYTD % return1-mo % return20082007200620052004200320022001
Sprott Gold and Precious Minerals231.02.8216.112.6-49.6-16.456.216.3-18.872.4116.2
Sentry Select Precious Metals Grwth181.72.6613.611.5-37.19.774.035.3-11.324.544.423.6
BMG BullionFund-A*
AGF Precious Metal390.72.609.16.5-36.46.763.919.4-7.964.5103.824.4
Mackenzie Univ Wld Prec Metal Class62.22.519.14.4-45.07.653.830.1-19.431.464.347.3
Mackenzie Univ Precious Metals271.32.428.84.2-45.76.649.226.8-20.530.889.744.4
IG MK Global Precious Metals Cl-A11.62.677.73.3
TD Precious Metals168.
Dynamic Precious Metals374.52.696.16.6-27.65.662.726.3-24.452.381.742.0
BMO Precious Metals52.52.315.44.3-40.83.346.824.8-19.22.485.135.9
CIBC Precious Metals76.22.315.02.4-42.06.658.225.3-15.658.067.127.4
RBC Global Precious Metals568.
Middlefield Precious Metals Class0.32.753.92.6
Altamira Precious & Strategic Metal43.52.663.22.2-29.4-2.442.713.1-12.667.183.319.0
iShares CDN Gold Sector Index1019.80.552.10.41.0-4.540.821.7-8.913.842.8
S&P 500 index -6.4 -8.6 -38.5 3.5 13.6 3.0 9.0 26.4 -23.4 -13.0
S&P/TSX composite index -1.4 -3.3 -35.0 7.2 14.5 21.9 12.5 24.3 -14.0 -13.9

*This fund, which invests in gold, silver and platinum bullion, is in the miscellaneous category.


© 2007 The Globe and Mail. All rights reserved.

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