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Mackenzie Precious Metals Class focuses on unique approach to security selection
12/12/2017 1:03:11 PM
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By Dave Paterson  | Wednesday, April 19, 2017


 

Managed by the team of Benoit Gervais and Onno Rutten, Mackenzie Precious Metals Class invests in companies involved in the exploration, refining and production of precious metals. Funds in the Precious Metals Equity category are by nature highly volatile. Acknowledging this fact, the managers use something of a unique approach to selecting portfolio holdings.

The fund invests in companies of any size, and at the end of January had about 25% invested in large caps, 28% in mid-caps, and the balance in small cap names. Approximately 30% was invested in non-Canadian companies.

As of March 31, top holdings included Detour Gold Corp. (TSX: DGC), Wesdome Gold Mines Ltd. (TSX: WDO), Newmont Mining Corp. (NYSE: NEM), Barrick Gold Corp. (TSX: ABX), and RandGold Resources Ltd. (NASDAQ: GOLD).

While the fund can invest in firms involved in silver, platinum, and palladium, the focus is on gold companies, which make up 80% of the fund.

The managers use a unique approach to resource investing and focus a lot of attention on finding companies that have the ability to generate higher levels of sustainable free cash flow. They dig deep to gain an understanding of a company’s true capital expenditure levels, which then allows them to more effectively forecast the free cash flow the company can potentially generate. They also look for quality management who have a strong history of sound capital allocation.

The fund had a heck of a run in the first half of last year, but with the U.S. Federal Reserve looking to raise rates this year, it looks like inflation will remain subdued. This has dampened enthusiasm for bullion somewhat, and there has been a modest selloff in the past six months, with the fund falling -11% to the end of March.

Short-term performance has been strong, with 1-year return of 29.1% as of March 31, and 3-year average annual compounded return of 10.8%. Longer term, the fund is still suffering from the effects of the decline in the price of gold through 2011-15, and shows a 3-year average annual compounded rate of return of -5.2%.

Even with the managers’ unique approach, most the fund’s return will be driven by the price of gold and other precious metals. Predicting the direction of any commodity is challenging. However, for those looking for an actively managed portfolio of gold companies, this is a decent pick. Be warned, though, like all precious metals funds, it is volatile, matching the category’s 3-year annualized standard deviation of 41.6. It should be used only as a smaller piece of an otherwise well diversified portfolio.

Mackenzie Precious Metals Class
Fund company:
Mackenzie Investments
Fund type: Precious Metals Equity
FundGrade Rating: B (March)
Style: Mid-Cap Growth
Risk level: High
Load status: Optional
RRSP/RRIF suitability: Poor
Managers: Benoit Gervais, Onno Rutten
MER: 2.51%
Fund code: MFC1192 (Front-end load)
Minimum investment: $500

Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson’s Top Funds Report, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.

Notes and Disclaimer

© 2017 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.

 

 
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