Investing in gold funds is one of the favourite strategies for investors around the world. We wanted to analyse the best equity funds to invest in gold as Its value changes in relation to metal’s demand and offer, but also in relation to the gold as an active. Considered a safe haven asset, it becomes the investors’ star in moments of inflation or market crisis, because it has a reverse relation with interest rates. Its price is usually much more steady than other actives. The Covid-19 crisis has reinforced this tendency and the number of investors deciding to put their assets into this commodity through Gold Funds has increased. Furthermore, investing in this commodity represents an important role within the investment portfolio, from a strategic perspective.
We asked the question, is it a good moment to invest in gold? What opportunities is hiding this yellow metal and how is it affected by Coronavirus? We have analysed the top 5 equity funds that invest in gold and other metals in 2021 as per Morningstar platform.
Source: Morningstar 11/06/2021 YTD (Enero 2021 – Junio 2021). *Clases de fondos en USD, excepto DJE – Gold & Ressourcen XP en EUR.
Invesco Funds – Invesco Gold & Special Minerals Fund
Shanquan Li, Fund Manager Invesco Gold & Special Minerals Fund
The Invesco Gold & Special Minerals Fund is an actively managed portfolio that typically invests in securities of mining companies that offer diversified exposure to gold and other precious metals. The investment team selects stocks by applying bottom-up fundamental analysis of individual companies with a strategy that can be considered counter-trend.
However, the strategy to invest in gold focuses on well-managed companies with quality assets, resulting in a focus on valuation and risk/reward profiles rather than potential turnaround scenarios.
To value companies, they apply long-term analysis of commodity prices and use a commodity price based on a constant marginal production cost to avoid the concern associated with potentially volatile commodity prices.
The last twelve months evaluated – April 2020 to April 2021 – the fund achieved a return of 16.85%. On a calendar year basis, in 2020 the portfolio returned 31.73% on its equities.
Instead of investing directly in minerals, the Invesco Gold & Special Mineral Funds is committed to investing in stocks of mining companies dealing in gold and other precious metals (silver, platinum, palladium and diamonds).
Gold accounts for 86% of the portfolio, while miscellaneous metals account for 7% and precious metals for 2.9%. Silver accounts for 1.4% of the portfolio at April 30, 2021.
With regard to the countries on which this fund is betting, Canada contributes 48.1% of the entire specific weight of the portfolio. Australia is second with 25%, the United States 7.6%, South Africa 7%, the United Republic of Tanzania 4.4%, Brazil 1.6%, Côte d’Ivoire 1.6%, Turkey 1.1% and 2.2% is currently held in liquidity.
The fund’s double-digit performance is the result of the work of Invesco’s investment team which, since its launch in 2010, selects stocks and equity-related securities from well-managed companies with quality assets, with particular attention to valuation and risk/reward profiles.
Jupiter Gold & Silver Fund
Ned Naylor-Leyland, manager of the Jupiter Gold & Silver fund and precious metals expert at Jupiter AM
The Enduring Lustre of Silver
Gold prices have shown signs of volatility recently, which could be encouraging news for those considering increasing their allocation to the monetary metal. Gold seems to have temporarily lost the three factors that are required to perform successfully in modern markets: leverage, momentum and discourse.
However, in the longer term I believe there are a number of factors that should be combined to create an environment of sustained price increases. Declining “real” interest rates (the return bond investors can expect to earn after discounting for inflation) and good operating results from mining companies underpin this outlook.
Interestingly, silver has recently outperformed gold, despite losing some momentum, it has continued to have a narrative. Silver is used in solar panels, batteries, various electronic devices and as an antimicrobial element in medicine.
It is the metal of the modern economy and an essential component within the green economy. Infrastructure investment plans, such as those announced in the US and Europe, have therefore given silver a major boost.
In Jupiter’s Gold and Silver strategy, we actively invest in shares of gold and silver mining companies alongside physical bullion of these metals. We believe this offers the potential to generate superior returns when gold and silver prices rise, as the values of these companies tend to rise (and fall) more than the prices of the metals themselves.
One final note of interest to gold and silver investors is the concept of the “commodity super-cycle”, which has been around for some years. In my view, the way commodities are behaving does imply a super cycle, but it looks more like a “currency super cycle” that may be coming to an end, which has implications for all asset classes.
In Jupiter’s strategy to invest in gold we have tried to take advantage of this over the past few months by buying components of high quality indices that have seen significant declines for no apparent reason.
The perfect monetary storm has been a long time in the making. In the US, the Federal Reserve has confirmed that possible adjustments to monetary policy will be made well in advance. At the same time, the possibility of a yield curve control is still present, lurking in the background. A decline in real interest rates therefore seems inevitable.
We see continued stimulus, fiscal and monetary easing and expansionary central bank policies as shaping the reality of what remains a highly stressed macroeconomic environment.
When real interest rates resume their long-term downtrend, the metals market should regain leverage, momentum and discourse, which is a reason for optimism for gold and silver investors.
Franklin Gold & Precious Metals Fund
Steve Land, CFA Vice President Portfolio Manager/Research Analyst
Gold’s role as a portfolio diversifer in times of uncertainty has really shined through several times over the past two years. Gold preices have lifted from the end of March recent lows driven by increasing concerns globally around pockets of inflation, the rapid increase in money supply and heightened trade tensions which may lead to currency volatility.
Gold stands out as a hard asset asset not tied to any one country or fiancial system with a very long history and deep roots as a financial asset. In 2021, although a path past the pandemic seems to be emerging, uncertainty remains. The need to finance and repay elevated government debt burdens may work to keep rates lower for longer, potentially supporting a period of elevated gold prices as low interest rates reduce the opportunity cost of holding non-interest-bearing assets, such as gold.
The Franklin Gold and Precious Metals Fund focuses on investing in companies that explore for or mine gold or other precious metals such as silver, platinum, and palladium. Although we do not invest directly in gold or other precious metals, our investments directly benefit from higher gold prices and the value of the gold they have in the ground and the revenue from gold sales increases. Gold focused equites are highly correlated to movements in gold, but often tend to be more volatile. In practice this means that a smaller allocation to gold equities can deliver many of the diversification benefits of a larger allocation to gold bullion.
Many gold and precious metals companies have seen their share prices underperform the changes in cash flow per share, resulting in contracting valuation multiples despite generally improving fundamentals given the strong cash generation in the current environment. Record high copper prices should also support precious metals producers with by-product copper revenue in the current quarter.
During periods of rising gold prices, such as we have seen over the past two years, we tend to take on more company specific risk, investing in earlier stage companies as higher potential margins and greater access to capital help offset some of the risks of developing new mines. Alternatively, in periods of falling prices, we typically reduce the number of holdings, focusing in on companies with low-cost production and strong balance sheets as a way to manage risk.
Most mining companies remain very disciplined compared to previous cycles and remain focused on creating better businesses by improving the cost structure of their operations, paying down debt and rationalizing their asset base.
Previous cycles saw companies chase production growth, allowing costs to rise in-line with the gold price, such that shareholders never really felt the benefit of higher prices. This cycle, management teams are increasingly focused on generating free cash flow that can be returned to shareholders via dividends or reinvested in high-return projects.
We believe small- and middle-capitalisation gold equities may present some of the best opportunities given their generally lower valuations and our belief in the need for further merger and acquisition activity as mining companies seek to replenish their resources following several years of limited exploration and development activity.
Given the current global economic backdrop, we believe that it makes sense to have some exposure to gold and precious metals equities as part of a diversified portfolio. We have positioned the Franklin Gold and Precious Metals Fund to not only benefit if precious metal prices move higher, but we are also invested in companies that can add value by discovering new ounces and by building new mining operations even in a flat to slightly declining gold price environment.
DJE – Gold & Ressourcen XP
Julian Müller, Head of Sales, Institutional Clients de DJE Kapital AG
DJE – Gold & Ressourcen is a global equity fund with a thematic focus. The concentrated portfolio consists of 50-70 stocks and invests predominantly in shares of companies which mine, process, and trade gold. Typically, we also harvest diversification benefits by adding stocks from a broader commodities universe, for example diversified mining enterprises as well as companies active in non-ferrous metals, oil, and gas exploration.
Our strategy is benchmark agnostic and can dynamically adjust its exposure to gold mining stocks between 30 and 100 percent. Using gold as its main investment theme, DJE – Gold & Ressourcen may provide diversification within a broader investment portfolio.
We follow a bottom-up approach in our security selection process and lay the focus on company fundamentals. Therefore, we prefer gold producers with strong balance sheets and competitive cost structures that are able to generate positive free cash flows for investors in a world of both high and low gold prices.
Using this approach, DJE – Gold & Ressourcen XP (LU0383654950) generated an annualized return of 9.9% in EUR since inception of the unit class in 2017 (as of May 31st, 2021).
For gold and gold mining stocks as an asset class, we have a constructive outlook. Negative or falling real yields are generally positive for real assets and gold in particular. In fact, in the four “low and rising” inflation periods since 1988 gold was the best-performing asset class in USD terms (source: J.P. Morgan Asset Management).
Overall, we think that due to elevated global debt levels, the world economy can hardly cope with higher real interest rates. The Federal Reserve has become aware of this problem and recently adjusted its inflation mandate to an average inflation target of 2% per year. Recent comments from Jerome Powell, chair of the US Federal Reserve, remain dovish and point to a continued accommodative monetary policy, including asset purchases. Given current real interest rates (-2.6% in the United States as of June 2021), we expect elevated investment demand for gold to continue.
The main question is – will the massive monetary expansion around the globe have unintended consequences? If inflation accelerates, gold may prove to be the most stable portfolio asset.
Landolt Investment (LUX) SICAV
The objective of this fund is to increase the value of its investment over the long term. It invests a minimum of two thirds of its available capital (net assets) in a portfolio of shares of companies active in the exploration, production, processing, transportation and distribution of energy products (oil, gas, electricity, coal, etc.) as well as in shares of companies providing services and equipment to the oil industry. In order to take advantage of or to hedge against market fluctuations, or for the purpose of efficient portfolio management, the Sub-Fund may have recourse to derivative instruments.
Aimed at investors who understand the risks of the sub-fund and wish to invest for a minimum period of 5 years, the fund’s benchmark is ‘FTSE Gold Mines PR USD’.