Recently, Kalpen Parekh, president of DSP BlackRock Mutual Fund, conducted a poll on Twitter to figure out the interest of investors in international funds. It was surprising to see some actually consider the Gold Fund.
When asked why investors would even give thought to it, Parekh reasoned that the interest was probably because it delivered no returns for many years hence makes for a contrarian, albeit speculative, bet.
Interestingly, a post today in Bloomberg noted that lousy investments by world’s major gold producers led to billions of dollars in losses. Companies went on a buying spree in 2010 and 2011, when prices surged, and then got stuck with too much debt and huge write-downs after bullion tumbled.
In 2013, Barrick Gold, the world’s largest producer, reported a $10.4 billion loss that included big asset write-downs from acquisitions. The industry reported losses for four straight years through 2015, with asset write-downs by producers such as Newmont Mining, Kinross Gold and Goldcorp.
Many companies sold unprofitable assets and searched for ways to cut costs and reduce debt. While return on equity has improved for the 15 biggest gold producers tracked by Bloomberg Intelligence, it’s still less than half what it was in 2008.
This be the case, then Parekh’s words (contrarian, speculative) are bang on.
Let's look at the fund Parekh was referring to- DSP BlackRock World Gold Fund. This is a feeder fund into BlackRock Global Funds - World Gold Fund. This fund is targeted at investors seeking mainstream gold and precious-metals equity exposure in a risk-controlled manner.
Morningstar’s Chicago-based analyst Fatima Khizou reiterated its Gold rating last year based on a highly seasoned manager, a talented team, and a rigorous and well-thought-through investment process.
Here’s what you need to know regarding the fund.
A look at the performance would scare any conservative investor away.
Evy Hambro has been fund manager since January 2002 when he was named co-manager alongside Graham Birch (since retired). This brings an attractive level of consistency to the fund’s management. Hambro is a talented portfolio manager who further benefits from a well-resourced team with significant expertise that he has helped build over time and a co-manager, Tom Holl, who was appointed to the role back in July 2015.
The managers attempt to outperform the FTSE Gold Mines benchmark through a bottom-up process that is risk- and liquidity-aware, and it focuses on large- and mid-cap gold and precious-metals producers. The investment process incorporates the assessment of commodity prices and companies. The team members seek to forecast a directional trend in each commodity price that is used to support their company-level analysis.
Within this framework, bottom-up company research is critical to the process and incorporates manager meetings and mine visits. The team believes good management is key to a company’s success. It focuses on companies in production, with a primary emphasis on lower-cost, higher-quality producers where it believes equity valuations underestimate the longer term earnings prospects.
Having said that, a top-down overlay incorporates the analysis of factors such as political risk.
The fund is constructed in a benchmark aware manner with the aim of generating steady outperformance. The main focus is on gold, but the managers also have the flexibility to invest up to 25% in other precious- and industrial-metals producers.
The portfolio comprises three segments: large holdings where liquidity is good and where the team’s conviction is high; medium positions where a company has a narrow range of operations; and small positions in less-liquid stocks.
According to the latest portfolio, the fund has an equity exposure of 98.58% with the balance in cash/derivatives. This exposure to mining stocks is predominantly in gold (86.13%) and silver (11.43%), with small exposures to diamonds and copper. These companies are listed across Canada, U.S., Australia and the U.K.
