This £83m fund was launched in April 2006, and seeks to deliver attractive returns and “a diversification opportunity” through investments in primarily gold equities, co-manager George Cheveley says.
He manages the fund alongside Hanré Rossouw with the aim of providing exposure to gold equities, as well as having the ability to invest in physical gold through exchange-traded products and other precious metals, although the manager points out: “At all times the fund will be at least two-thirds gold and gold equities.”
The fund’s process has remained relatively unchanged, although the fact the managers take into account the macro environment and the gold price means “there are always tweaks happening”. Mr Cheveley explains: “We are aware of the cycle, so [the process] evolves to some extent with how we weight the cycle. But the fundamental process has not changed radically over time. We have always taken a macroeconomic view on the gold price and backed that up with stockpicking.”
He points out the team analyses the market to create a medium- and long-term view of the gold price and the direction in which it is likely to travel. “With those price forecasts we do a lot of fundamental, bottom-up work modelling individual gold companies. We are looking at valuations in various forms, multiples, discounted cashflow and concentrating on the return on capital employed as well, to pick what we see as the best companies in the sector to provide good returns over the medium term,” says Mr Cheveley.
When it comes to implementing those decisions and weighting the companies in the portfolio, the managers look at where they are in the cycle, the forecast and the direction to help decide how much weight should be allocated. Mr Rossouw adds there is quite a big focus on the macroeconomic outlook given that gold is seen as a store of value and a safe haven by investors in a world of low interest rates. “That is a key determinant for us in understanding where the gold price is going as the macro factors play into the attractiveness of gold,” he adds.
The fund’s A accumulation share class sits at the riskier end of the risk-reward spectrum at a level seven out of seven, with ongoing charges of 1.67 per cent, its key investor information document shows.
EXPERT VIEW - Marianne Weller, Senior Investment Analyst at City Financial |
| The Investec Global Gold fund follows an established strategy and benefits from the expertise in the group’s resources team based in both the UK and South Africa. There is a focus on lower-cost producers with growth prospects. Their analysis is complemented by the team’s broader understanding of commodity markets and the willingness to be nimble in identifying and exploiting both tactical opportunities and prospects in smaller companies. Like the benchmark, it can have significant allocations to the large mining companies, but given its quality threshold it can lag the index when junior miners are rampant. |
For the five years to July 15 the precious metal has struggled, with the fund recording a loss of 21.6 per cent, data from FE Analytics shows. But the first half of the year has seen a turnaround in fortunes, with the fund returning 138.1 per cent, for the year to date, to July 15.
Mr Cheveley says: “A year ago [the fund] was more defensively positioned. A year and a half ago around 75 per cent of the fund was gold equity, with the balance being physical gold, platinum, palladium and PGM [platinum group metals] equities as well. By the end of last year we were taking a more constructive view of gold even though prices were coming down. We moved the fund more into gold equities, and now we are 98-99 per cent gold and silver equities.”
Mr Rossouw points out the performance year to date has been underpinned by the strong performance of the gold price, which climbed 25 per cent in the first six months of the year.
“Gold companies offer you much stronger upside in a rising gold price environment. You’ve got operational leverage that exaggerates the benefit of a stronger gold price and you have weaker currencies relative to the dollar that benefit companies in terms of cost bases in countries such as South Africa, Australia and Canada,” he explains.
“You’ve got the double whammy of the gold price on the revenue side and the currency that decreases your costs. We’ve seen equities perform much stronger than the gold price, and that’s why we’ve performed so well. We’re fully invested in equities and moved away from physical gold.”
Looking ahead, the managers are optimistic for the commodity given the uncertainty in the macroeconomic environment, from reduced expectations of another US interest rate rise, political uncertainty in Europe and currency devaluation. Mr Rossouw adds: “It is a cyclical profile in terms of returns, but the diversification element of gold and gold equities is always there.”
