Multi-managers including Jupiter’s John Chatfeild-Roberts and Cazenove’s Marcus Brookes have bought into gold equities in the past few months, primarily backing BlackRock’s star commodities manager Evy Hambro and his £1.5bn BlackRock Gold & General fund.
This comes on the back of massive losses for gold mining companies, which has seen Mr Hambro’s fund post a loss of 49.6 per cent in the three years to October 25, according to FE Analytics.
The £1.1bn JPMorgan Natural Resources fund – another popular choice for commodities exposure among multi-managers – has also suffered a three-year loss of nearly 40 per cent, but has recently been brought in to Cazenove’s flagship Multi-Manager Diversity fund by Mr Brookes.
The Cazenove multi-manager team believes the “undervalued, under-owned and unloved” area of gold shares – and commodities more generally – should be an area of interest. In September, co-manager Robin McDonald said this area was the “most shorted” by hedge funds, as managers have been betting on the companies in this sector to fall further in price.
Cazenove’s multi-managers have a good track record of taking contrarian positions. Last year, the team sold out of emerging markets, avoiding this year’s sell-off to a greater degree than many peers.
But being right this time round may not be quite so simple as there is a dislocation between gold miners and the price of gold, which long-term investors in the asset class – Evy Hambro notably among them – are starting to believe may be permanent.
In his most recent fund commentary at the end of September, Mr Hambro spoke of “continued volatility in the gold price” and how he had reduced exposure to companies that could suffer in a “lower gold price environment”.
As the financial crisis took hold in the wake of the collapse of Lehman Brothers and spread throughout Europe, the price of gold rocketed as investors sought safe havens. Between November 27 2008 and August 24 2011, gold went from $756 an ounce to $1,883 an ounce, an increase of 149 per cent.
In the same period, the HSBC Global Gold index of gold mining companies rose by 100 per cent.
But while gold companies failed to capture the full effect of the rise in gold prices, they caught almost double the downside – while the gold price fell 28.2 per cent from its peak to October 25 2013, the HSBC Global Gold index collapsed, falling 53.4 per cent.
So far in 2013, the price of gold has fallen 20.2 per cent to October 29, but since a low point of $1,205 dollars an ounce in June, it has rebounded back, gaining 11.7 per cent – possibly connected to investors growing fearful of a US default and seeking a safe haven.
Again, though, gold companies have performed far worse – this year the HSBC Global Gold index is down 38 per cent. However, since June the index has risen 18 per cent, outstripping the gold price.
The proliferation of exchange-traded funds (ETFs) has made it far easier for investors to buy into gold directly, meaning the ‘natural’ buyers of gold-related shares that existed 15-20 years ago are no longer there. The rise of ETFs has also made it easier to trade gold quickly, making the price more volatile.
ETF Securities has $19.4bn (£12.1bn) invested across six gold products tracking the gold price and gold futures. Invesco’s Powershares ETF arm and iShares both have physical gold ETFs available, with more than $160m invested in each, while State Street’s ETF business SPDR has a gold shares tracker worth $38.1bn.
Those who are thinking of following the examples of seasoned investors dipping their toes back into gold shares should note that the moves have been heavily couched by both Jupiter and Cazenove – the managers know how risky this bet is.
Mr Chatfeild-Roberts says on page 24 of this week’s issue that his investment in Mr Hambro’s fund is not simply a proxy for the gold price – he is using a physical gold ETF as an “insurance policy” – and admits he is “not hanging my hat on it”.
The ETF should help to diversify the risk in Mr Chatfeild-Roberts’ portfolio as if stocks are rallying, it is likely gold mining shares will go with the flow, but in more ‘risk-off’ markets, a holding in physical gold – seen as a store of value as well as a ‘safe haven’ – should provide protection.
Mr McDonald adds that his team “may be wrong”, or at least “early” with the move, and have only invested 2.5 per cent of the Cazenove Multi-Manager Diversity fund in BlackRock Gold & General and JPMorgan Natural Resources – hardly a gung-ho investment call.
But that is what successful investing is about – spotting the opportunities early and moving to exploit them. And being sure to hedge your bets, of course.
