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Funds lack lustre when gold falls


How much precious metals funds have lost amid the recent freefall in the gold price.

Gold futures for February delivery on the New York Mercantile Exchange closed at a record high of $1,218 (U.S.) per ounce on Dec. 3. The price fell to $1,107 an ounce by Dec. 17.

Derek Burleton, director of economic analysis at Toronto-Dominion Bank, said this week that he expects more upside for gold over the next 3 to 6 months. But "gold prices will face increasing headwinds as 2010 unfolds, and we move into 2011," he argued in a report.


We checked the loss by all precious metals equity funds as the gold price fell. We included BMG BullionFund, which invests in gold, silver and platinum. (This fund is in the miscellaneous category.) U.S. dollar and duplicate versions of funds were excluded.


Easy come. Easy go.

Returns of mutual funds and exchanged-traded funds (ETFs) have surged north with the rising gold price, and south as the metal loses steam.

Two funds that lost the most recently were ETFs. The iShares CDN Gold Sector ETF, which is nearly 50-per-cent invested in Barrick Gold Corp., Goldcorp Inc. and Newmont Mining Corp., shed 14 per cent.

And PowerShares Global Gold and Precious Metals Class, a mutual fund sold by Invesco Trimark Ltd. that invests in a U.S.-listed PowerShares ETF, was off 12 per cent.

Oliver McMahon, director of product management at iShares Canada, said his firm's ETF may have lost more because of a bias to big gold company stocks.

"We have a larger exposure to the stable, large-cap companies" that might be harder hit when investors bail from the sector, he said. "And it looks like at the moment the large-cap companies are underperforming small caps."

But the iShares ETF is more of a pure-play on the gold sector compared with rival offerings that may be getting some support from non-gold investments, he said.

PowerShares Global Gold's three largest stocks are Barrick, Newmont and Anglo Platinum Ltd. that make up 23 per cent of that offering.

The iShares gold ETF may also be falling more in a down market because it doesn't really hold cash like conventional mutual funds, he said. "We try to keep our portfolios fully invested."

Some investments, like Sentry Select Mining Opportunity Class managed by Kevin MacLean, are faring better because of their non-gold stocks. This fund, which only lost 2 per cent, is nearly 50-per-cent invested in base metals in addition to gold stocks.

Diversification is something for investors to keep in mind if they don't like the roller coaster rides when gold glitters and then fades quickly.

How precious metals funds have fared during the recent gold correction
(As of Nov. 30)Latest% rtnYTD % rtnCalendar year % rtn
Fund name Assets ($-mil)MER(Dec 3-17)(Dec 17)20082007200620052004
iShares CDN Gold Sector Index1,195.50.55-
PwrSh Glbl Gold and Pr Metals Cl SC*-11.6-7.9
Sentry Select Precious Metals Grwth362.02.75-10.381.4-37.19.774.035.3-11.3
TD Precious Metals263.52.15-10.055.7-33.44.649.426.8-15.1
Mackenzie Univ Precious Metals461.12.44-10.064.2-46.16.649.226.8-20.5
Mackenzie Univ Wld Prec Metal Class99.12.51-10.065.8-45.07.653.830.1-19.4
Dynamic Strategic Gold Class*50.6-9.77.3
AGF Precious Metal618.62.58-9.659.8-36.46.763.919.4-7.9
Altamira Precious & Strategic Metal60.72.35-9.451.7-29.4-2.442.713.1-12.6
RBC Global Precious Metals914.12.04-9.358.5-
IG MK Global Precious Metals Cl-A64.62.68-9.361.4
Sprott Gold and Precious Minerals520.02.84-9.2107.7-49.6-16.456.216.3-18.8
Dynamic Precious Metals665.32.75-9.154.8-27.65.662.726.3-24.4
CIBC Precious Metals120.12.47-9.057.7-42.06.658.225.3-15.6
Middlefield Precious Metals Class2.02.47-8.828.8
Sprott Gold Bullion Fd-A*-7.72.1
BMO Precious Metals88.12.31-7.064.7-40.83.346.824.8-19.2
Claymore S&P/TSX Global Mining ETF0.59-6.250.7-38.8
BMG BullionFund-A3.31-6.022.5-4.12.524.512.5-4.0
Sentry Select Mining Opportunity Cl31.92.88-2.4141.9-69.810.0
S&P/TSX Total Return-1.331.7-33.09.817.324.114.5
S&P/TSX Composite Index-1.427.7-
S&P/TSX Global Gold-
S&P/TSX Capped Divers Metals & Mining0.4317.5-68.418.465.745.215.9
* Since Inception. These funds were launched during the year.
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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