Last updated: Mar-18-2019

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Veteran business journalist and investigative reporter Olev Edur takes you behind the performance numbers for close-up look at the people, processes, and portfolios that make investment funds tick.

By Olev Edur  | Thursday, February 01, 2018

While the investment world has been enthralled of late with U.S. President Trump’s deregulation, corporate tax cuts, and the ensuing boom in U.S. markets, and while around the world the economic buzzword has become “synchronous global growth,” gold (along with other metals) has surreptitiously been mounting a fairly dramatic comeback of its own lately. And the FundGrade A+® Award-winning Dynamic Precious Metals Fund has definitely been riding the wave.

Indeed, precious metals equity funds topped all fund categories in December 2017 with a 3.9% one-month return, although the category only managed a 0.8% for the year through December. On the other hand, the three-year average annual compounded rate of return for the category was a robust 13.1%, the disparity in those figures seemingly reflecting the volatile nature of precious metals markets.

Those figures tell only part of the story, though, and Robert Cohen, portfolio manager of the Dynamic Precious Metals Fund (whose holdings are 97% gold), has generated much more impressive returns, with a 1-month return of 6.7%, one-year return of 12.9%, and a 3-year average annual compounded rate of 25.2% as of Dec. 31. “We haven’t had a bad year since 2013,” he says.

Cohen notes that gold bullion prices have actually been climbing fairly strongly for a while now (from a low of around US$1,062 an ounce in November 2015 to US$1,337 in mid-January 2018), but the returns from gold equities have not kept pace. “What we’ve done differently is that we have avoided investing in run-of-the-mill gold companies, because generally they’re not well managed,” he says. “The best opportunities are down-market, because there are still issues with the big companies.”

Cohen adds that some of those bigger companies have been hammered pretty badly lately, which may make them an attraction for value investors, but he cautions against being hasty. “People look for value stocks, but they’re usually beaten up for a reason,” he says. “You need to be pretty confident about a turnaround.

“You don’t want to spread your wings too far, though,” Cohen adds. “You need to be choosy about stocks and stick to quality names, but they’re few and far between. We’re invested half in Canada and half outside Canada, mostly in Australia. There aren’t enough good companies in either country to build a decent portfolio but by combining the two markets, we’ve been able to build a portfolio of 30 good names.

“Most investors haven’t looked at Australia, for whatever reason,” Cohen adds. “Maybe they don’t have as much exposure to the management teams of companies there, or they’re considered parochial, but Australian companies were trading at a discount in relation to Canada. The gap narrowed in 2017, but Australian companies are generally cheaper and better quality than North American companies. And there’s as much gold in Western Australia as there is in Ontario and Quebec combined.”

Among Cohen’s current Canadian favorites is Kirkland Lake Gold Ltd. (TSX: KL), a medium-sized Toronto-based gold producer (2018 target of 620,000 ounces) that now has mines in both Canada and Australia. “They recently bought some Australian assets,” he notes, adding: “They’re a good, solid company with low operating costs, and they’re trying to grow.”

Across the pond, Cohen cites Northern Star Resources Ltd. (ASX: NST), based in Subiaco, Western Australia, another low-cost, high-quality producer (and currently the fund’s largest holding). “They have a very good management team, with sharp pencils,” he says.

As for where gold is going from here, Cohen acknowledges that Trump has enacted a lot of tax and regulatory reforms that “check the right boxes,” and given the inverse correlation between gold and the greenback, it remains to be seen how much higher bullion prices can go as U.S. markets continue their ascent. “If gold makes a big move, it will need a catalyst, and it usually comes from the U.S., whether it be a political issue, a pick-up in inflation, or North Korea,” he says.

“After the financial crisis [in 2008-9] everything went off the rails, and it’s taken almost 10 years to restore valuations,” Cohen says. “Now it’s swinging the other way, and like in the late 1990s, there’s a lot of stupid money around, like with the marijuana and bitcoin booms, and that’s good news for gold.”

Olev Edur is an experienced financial and business journalist and a frequent contributor to the Fund Library.

Notes and Disclaimers

© 2018 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual 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. The foregoing is for general information purposes only. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.

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