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A bumpy ride for gold equity funds

swon@globeandmail.com

What are we looking for?

Given how mining stocks have been struggling in recent months, let's see how precious metals equity funds have fared over five years, a period that includes both the financial crisis and the big run-up in gold prices between 2009 and 2011.

The screen

We looked at funds with a five-year track record ended Feb. 28. U.S. dollar, segregated and duplicate versions of the funds were excluded.

What did we find?

Only one fund, Sentry Precious Metals Growth, has some shine left. It was the only money-maker over the past five years, eking out an annualized gain of nearly 2 per cent.

Mind you, the five-year records of these funds don't reflect the fact that the asset class had some stunning returns in 2009 and 2010 when stocks snapped back after the financial crisis.

The lesson? Investors need to take some profits in this volatile sector during the good years.

Precious metal funds own mainly gold miners. The share prices of these miners are influenced by the price of the metal, which has fallen to the $1,550 (U.S.)-an-ounce range from more than $1,900 last September.

Gold miners also face rising costs for energy and labour, as well as lower ore grades, says Kevin MacLean of Sentry Investments, the lead manager on Sentry Precious Metals Growth.

The manager said his fund has managed to outperform its peers partly because it has been more conservatively run in recent years. After the asset-backed commercial paper debt crisis in 2007, Mr. MacLean reduced his exposure to miners needing capital, such as the advanced exploration companies. "We are very focused on looking at the companies that can survive this downturn in the gold price and sentiment," he said.

Mr. MacLean owns names like Alamos Gold and Argonaut Gold: well run, low-cost producers that are also financially strong. He has also been adding to positions in mining royalty companies such as Silver Wheaton and Sandstorm Gold, and bought a new name, Premier Royalty. These companies, which finance mining projects in exchange for a royalty on future production, "tend to be the safest names in this environment," he said. "We are looking for the least risky ways to make money in the gold sector."

*****

HOW PRECIOUS METALS EQUITY FUNDS HAVE FARED OVER FIVE YEARS TO FEB. 28.

% return (Feb. 28)% returnAssets
FundSymbol5-yr3-yr1-yrYTD20122011201020092008MER($-mil)
Sentry Precious Metals Growth1.70.3-35.7-18.1-7.9-23.178.585.4-37.12.72478.9
RBC Global Precious Metals0.0-1.6-33.7-15.6-12.4-28.175.165.7-26.22.13776.9
Altamira Precious & Strategic Metal-2.1-3.0-33.0-14.4-13.3-30.773.358.3-29.42.4146.6
BMO Precious Metals-3.9-3.7-32.9-17.0-12.5-23.659.272.2-40.82.4074.8
AGF Precious Metal-4.3-3.8-33.0-14.7-13.2-26.859.662.8-36.42.68350.6
Dynamic Precious Metals-5.0-10.5-44.7-24.7-19.0-29.268.460.9-27.62.65427.9
Sprott Gold and Precious Minerals-5.3-6.4-42.1-18.9-19.9-31.374.7113.8-49.62.93330.5
iShares S&P/TSX Global Mining Index Com ETFCMW-T-5.6-4.3-16.6-8.1-2.4-25.326.554.3-38.80.6025.6
Mackenzie Univ World Prec Metal Class-6.3-3.7-35.5-16.2-17.2-15.149.168.6-45.02.6159.2
iShares S&P/TSX Global Gold Index ETFXGD-T-6.5-7.1-30.9-15.5-15.4-14.126.07.01.00.60956.0
TD Precious Metals-7.1-8.8-34.6-13.3-17.5-28.644.861.6-33.42.27168.5
Mackenzie Univ Precious Metals-7.4-4.6-34.3-15.9-16.1-17.546.666.8-46.12.55325.2
CIBC Precious Metals-8.2-8.9-39.3-18.6-17.0-35.367.063.1-42.02.4874.9
S&P/TSX Total Return1.86.24.63.57.2-8.717.635.1-33.0
S&P 500 Composite Total Return Idx($Cdn)6.012.618.310.213.54.49.48.1-21.9
Source: Lipper

© 2007 The Globe and Mail. All rights reserved.

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