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A less-than-golden year for precious metals

jnelson@globeandmail.com

What are we looking at?

The slump in gold prices over the past two weeks put precious metals in the spotlight. How have equity funds that focus on the asset class performed in the past year?

The screen

We looked at the best-performing precious metals equity funds for the year ended March 31. U.S. dollar, segregated and duplicate versions of the funds were excluded.

What did we find?

Precious metal funds have been in pain for months, and none of them managed a positive return in the one-year period ending March 31.

The Horizons Gold Yield exchange-traded fund came closest, returning an annualized loss of 4.6 per cent. The actively managed ETF, which was created in mid-December, 2010, aims to provide investors with exposure to the price of gold bullion. It is hedged to the Canadian dollar to mitigate foreign exchange risk. The product also uses covered call options on a portion of its securities to produce income and provide a bit of protection against volatility.

And there has been plenty of volatility around gold and silver since the recession hit in 2008. While returns have been poor over the last few years, there was a sharp commodity rebound beginning in 2009 that extended through 2010 during which many of these funds recovered losses sustained during the downturn.

But those gains have now largely been wiped out, and returns have suffered. Precious metal funds tend to be heavily weighted toward gold, which fell to a two-year low earlier this month, bottoming out at $1,361 (U.S.) an ounce. Gold has since made up some of that ground - up 6 per cent from the recent dip - but is still down 15 per cent from the start of the year.

It's not just the value of the yellow metal that is causing problems. Precious metal producers are facing extremely challenging conditions, including trouble accessing financing, increased labour and energy costs, and writedowns - all of which are hurting miners' profits.

All of the top 10 holdings in the iShares S&P/TSX Global Mining ETF, for example, are trading at less than their value one year ago. The ETF, which came in second on the screen with an annualized loss of 13.9 per cent, is designed to replicate the S&P/TSX Global Mining Index's performance, which did even worse, down nearly 17 per cent in the period.

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% return (Mar. 31)% returnAssets
FundSym1-yr3-yr5-yr10-yr20122011201020092008MER($-mil)
Horizons Gold Yield ETFHGY-T-4.60.9054.6
iShares S&P/TSX Glo Mining Idx Com ETFCMW-T-13.9-6.8-5.5-2.4-25.326.554.3-38.80.6025.6
Sprott Silver Equities Class-A-21.22.7915.2
Altamira Precious & Strategic Metal-23.1-4.3-0.110.0-13.3-30.773.358.3-29.42.4146.7
iShares S&P/TSX Global Gold Index ETFXGD-T-23.5-6.5-5.05.8-15.4-14.126.07.01.00.60993.7
PowerShares Global Gold and Precious Metals Cl A-23.9-7.6-7.7-20.228.12.064.8
RBC Global Precious Metals-25.9-1.61.614.0-12.4-28.175.165.7-26.22.13576.6
TD Precious Metals-26.1-8.8-5.57.4-17.5-28.644.861.6-33.42.27168.5
Mackenzie Universal Precious Metals-26.5-5.0-6.46.6-16.1-17.546.666.8-46.12.55316.8
BMO Precious Metals-26.7-3.8-2.26.4-12.5-23.659.272.2-40.82.4074.7
AGF Precious Metals-27.5-5.1-3.212.3-13.2-26.859.662.8-36.42.68350.7
Mackenzie Universal World Precious Metals Class-27.7-4.2-5.38.2-17.2-15.149.168.6-45.02.6157.7
IG MK Global Precious Metals Cl-A-28.0-5.7-17.4-16.845.163.92.7688.8
Sentry Precious Metals Growth-28.2-2.13.614.8-7.9-23.178.585.4-37.12.72465.8
CIBC Precious Metals-32.1-10.3-6.88.2-17.0-35.367.063.1-42.02.4875.6
S&P/TSX Total Return6.14.92.110.07.2-8.717.635.1-33.0
S&P 500 Composite Total Return Idx($Cdn)15.812.75.64.613.54.49.48.1-21.9
Source: Lipper

© 2007 The Globe and Mail. All rights reserved.

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