This modest £38.83m fund has been managed since 2008 from Toronto by Ani Markova, who works for AGF Investments – the portfolio’s investment adviser.
“We believe successful investing in the commodities market is achieved by combining a global analysis of the macroeconomic environment, together with a disciplined, fundamental stock-selection process,” she explains. “The goal is to uncover the world’s best natural resource opportunities for our unitholders.”
Ms Markova acknowledges that within what can be a volatile sector, she takes a “more balanced approach” to actively managing the investments, which are generally geared towards the mining sector. She says this involves conducting macro analysis to discover what is driving supply and demand for a range of commodities, to help make decisions about allocating to the various precious metals and to manage the allocation to market capitalisation.
She says: “We always look for earlier-stage opportunities in the junior [mining] space, where we take small positions in a basket of juniors and up-and-coming companies. We try to nurture them and invest through exploration and development to realise the cashflows at a later stage.
“We don’t take any big company bets and we try to keep all of our investments within 5 per cent. There are all kinds of risks and we’ve experienced that in the past where factors out of left field could really impact the valuations and thus cause a bit of volatility within the fund.”
Ms Markova continues: “This fund is unique in regards to being able to hold bullion. Up to 10 per cent of our holdings can be in bullion through a couple of closed-end funds in Canada. We also actively use cash and other asset classes to shelter some of that volatility in the gold and silver prices.” This means there is currently some exposure to diamonds in the portfolio.
The manager points to the trend since 2008 for printing money among central banks. She says: “The currency fluctuations are giving the gold price a headache. It is clear to us that although everybody is quoting the gold price in US dollar terms, in other currency terms the price is doing quite well because of the debasement of various currencies that has occurred and the weakening of, for example, the oil currencies and other material currencies, such as the Canadian and Australian dollars and even the euro to some extent.
“In this environment, we try to diversify the fund with assets that are mostly in jurisdictions with weakening currencies, as firms operating in those [countries] are paying their workers in local currency and so their margins are better protected. Our focus has been on uncovering those opportunities and adding to positions in Canada, Australia and in other global jurisdictions.”
The fund’s key investor information document shows its risk-reward rating takes account of the sector’s volatility and sits at seven on the riskiest end of the spectrum. Ongoing charges on the A income clean retail share class are 1.82 per cent.
The fund’s performance has been disappointing in the short term, although it has managed to deliver positive returns in the longer term. “I’m happy to say that we have been delivering on our promise to our unitholders of delivering a better performance than the benchmark – the TSX Global Gold and Resources index,” Ms Markova says.
In the past 12 months to July 20, the vehicle has lost 34.62 per cent against the IA Specialist sector’s average loss of 0.58 per cent, data from FE Analytics shows. Funds investing in gold and precious metals have struggled to generate positive returns in the past few years, the data adds. However, across 10 years the portfolio has generated a more solid 34.39 per cent return, but is still below the sector’s average of 58.57 per cent.
The manager admits: “We thought the silver price and the silver companies would perform relatively better as the price comes more in line with historic equilibriums relative to gold. But unfortunately the gold-to-silver ratio [the number of ounces of silver it takes to purchase one ounce of gold] continues to be at stubbornly high levels, meaning silver is underperforming the gold price in various ways. The junior silver names have especially been major underperformers in that environment.”
EXPERT VIEW
Jon Beckett, UK research lead, Association of Professional Fund Investors
With Ani Markova, investors in this fund will take on lots of exposure to miners, equities and potentially some currency risk. The portfolio is small, as are many funds in this sector. Given the relentless slowdown in metals, investors would do well to look beyond the post super cycle. Recent performance has been driven by a basket of developed companies such as Semafo, US Concrete and Petra Diamonds. Ms Markova is right to point to the improving health of miner balance sheets and capital discipline, but whether this leads to earnings growth remains to be seen. Consider reviewing currency hedging, but if you want gold miner exposure, then this fund is worthy of a look over the usual sector behemoths.
