InvestmentsJun 10 2013

It’s an ever-changing landscape. That makes it interesting.

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With his family’s extensive history, it was always going to be inevitable that Evy Hambro would make a name for himself in the City. But how he came to head up BlackRock’s huge natural resources team and become one of the most recognisable faces in the investment industry comes mainly down to two men – George Soros and Jimmy Goldsmith.

As part of the Hambro family that set up Hambros Bank back in 1839, Evy Hambro is so steeped in the City that he describes it as flowing through his DNA. But he wasn’t going to blindly follow in his ancestors’ footsteps, and enrolled at Newcastle to do a degree in Agricultural Food Marketing, while also nurturing an ambition to go into the creative side of advertising.

Bluntly told he wasn’t cut out for advertising, he embarked on a series of internships with Cazenove, with Lazard and, finally, with Mercury Asset Management, where Julian Baring was running the Gold & General fund. This meant that Mr Hambro joined the fund in the summer when, in April 1993, influential investors George Soros and Jimmy Goldsmith sparked a rally in the price of the yellow metal as Mr Soros bought Goldsmith’s shares in Newmont Mining for $400m (£265.1m) and Mr Goldsmith stated he would use that cash to buy gold bullion and gold options.

The manager says: “The internship at Mercury was fascinating because it was during summer in my second year of university and I worked for Julian Baring, who was an incredible person to work for. During that summer we had the most amazing rally in the price of gold, forced higher by the entrance into the market, very publicly, of George Soros and Jimmy Goldsmith and it created a very substantial move in the price of gold in a very short period of time. I was able to see the explosive reaction of the shares inside the portfolio.”

The price of gold rocketed by 18 per cent to more than $400 per troy ounce by late July in 1993, though the price did then subsequently fall back.

But the excitement of that summer stayed with Mr Hambro. “It was fascinating,” he says, laughing. “I wasn’t necessarily addicted, but I became incredibly interested in fund management and particularly in that area.”

While the gold mining fund had made an impression on Mr Hambro, he in turn had made an impression on Julian Baring, who invited him back in his winter holiday to help out on the Mercury World Mining Trust (now, like the Gold & General fund, run by BlackRock).

This is where Mr Hambro first met Graham Birch, with whom he would strike up a successful investment partnership until Mr Birch’s retirement in 2009.

In spite of this successful start as a holiday intern, Mr Hambro rejected an offer to leave university straight away, preferring to stay on and finish his degree. He joined after finishing at Newcastle, eschewing the investment banking careers that his peers went into for the comparatively unsexy fund management industry.

He has stayed on the same funds ever since, though the ownership changed hands from Mercury to Merrill Lynch and then BlackRock, gaining prominence when the gold price and gold shares exploded through the early to mid 2000s, but for the past few years the gold price has suffered, and gold shares have plummeted.

In fact, the BlackRock Gold & General fund has lost 35 per cent in the past two years, while investors have been leaving in droves, halving the fund size to roughly £1.5bn.

The manager is visibly disappointed when he talks about the recent absolute performance of the fund, though he is keen to point out that the fund has been outperforming relative to its benchmark, which it is beating by 5 per cent so far in 2013.

“We are working really hard to get the absolute numbers back up again because it has been pretty disappointing in the past few years but, at the end of the day, we cannot go in the opposite direction of what the sector is doing.

“If we can outperform when the sector is going down, that’s okay, but it’s not great and we have got to be able to generate the absolute return that people want by making sector bets and that is the goal right now.”

If investors do believe in the long-term case for gold equities, then they will struggle to find a better way to access it than through Gold & General, with its stellar track record, but Mr Hambro is keen to emphasise how much his team contributes to performance.

“I would like to make sure as much is made of the team as me. It’s actually them that do everything and it’s important that is recognised.”

Mr Hambro says the fund is run on a “true to label” basis and, as such, cannot invest in sectors outside of its mining remit, nor can the manager keep back a substantial amount of money and “hide” in cash, two of the main ways to improve absolute performance when the sector is falling in value. So instead, he is looking to limit the downside while also buying into companies that he believes are incredibly cheap right now.

He explains: “We are constantly evolving the portfolio based on where we see opportunities or value in the market, and right now there are exploration companies that have made a discovery. But if the costs they are saddled with to turn that discovery into a producing asset are too high for the market right now, then those shares are heavily discounted to their long-term value and that’s an area of opportunity.

“All gold mining companies have been tarred with the same brush, so there are opportunities to buy companies with great production growth that are fully financed and will be beneficial to the value of the company over time, and we are heavily invested in those companies.”

However, while it may be true that these gold mining stocks are cheap relative to their history, after some have gone through share price falls of 50 per cent or more, it is less clear when there might actually be a turnaround. Mr Hambro is only willing to commit to saying gold and gold shares are a buying opportunity in the medium term; in the short term, he concedes, anything could happen, to both the gold price and gold shares.

The main negative for gold, according to the manager, is the continuing strength of the dollar, which has a strong negative correlation to gold. If the US economy picks up, then the dollar will strengthen and gold will likely suffer.

In the marketplace, there is a battle between futures traders who are selling gold, central banks and people buying gold jewellery on the other. In fact, central banks bought up more physical gold in the first quarter of this year than at any other point since 1962. These buyers have set up an effective support level between $1,300 and $1,350 per troy ounce of gold, which is where the price has dropped to twice this year and has bounced back. Mr Hambro believes this support should continue to protect somewhat to the downside on the price.

But when it comes to gold miners, there is more work to be done. Mr Hambro has been vocal in his calls for mining companies to adopt more shareholder-friendly policies and to stem their love of loss-making exploration and production aims, but while there are improvements in the sector, they are slow in coming.

“The thing about the sector is that it is always changing – new countries opening up for investment, other countries closing themselves as a result of government change – there are exploration successes and there are companies failing, new management teams, shift in the view on commodities all the time in terms of supply and demand so it’s an ever-changing landscape to invest in and that is what makes it interesting.”

Time will tell whether the man with ‘City DNA’ in his blood will be proved right in his belief that gold will have its day once again or whether he has just been seduced, like many others, by the shiny yellow metal.

CV

1994-present

Managing director, chief investment officer of the natural resources equity team and portfolio manager of BGF World Mining, BGF World Gold, BlackRock Gold and General and BlackRock World Mining funds (includes years at Mercury Asset Management and Merrill Lynch Investment Management, which merged with BlackRock in 2006)

1994

Graduated from Newcastle University with a BSc degree in agricultural food marketing