The recent spike in gold mining stocks is a sign of things to come, according to Catherine Raw
, co-manager of the $10bn BlackRock Global Funds World Mining
Raw believes that Ben Bernanke’s decision to implement more quantitative easing (QE) will provide a major boost to such firms and will bring their performance more in line with the price of bullion.
"I am positive going forward because in times of inflation and low rates, which according to the Fed we will see through to 2015, investors will look to buy gold stocks because gold becomes a currency in its own right," she said.
During the 2009 and 2010 QE-fuelled gold rally, bullion and gold equities were positively correlated. However, in the last few years there has been little correlation between the two, with gold equities underperforming the spot price significantly. Raw believes this correlation is now increasing and is likely to endure.
"The correlation occurring between the mining stocks and the gold stocks is due to quantitative easing and the relative purchasing power of money," she said.
"I think we will have to wait and see if the correlation is going to remain, but the scale of the liquidity measures has surprised people in a good way. It seems to be open-ended and committed to saving the labour market and not concerned with the impact of inflation."
"This is good for commodities in general because if the Fed is not worried about inflation then it is less likely to attempt to curb it," she added.
The HSBC Gold Mining & Energy index is up 10 per cent in the last week, while the price of bullion is up by around 3 per cent over the same period and hit a six-month high of $1,770 today.
Performance of indices over 3-yrs
Source: FE Analytics
Raw, who manages the portfolio with FE Alpha Manager Evy Hambro
, is bullish on natural resources in general, highlighting industrial commodities as another sector that could receive a major boost.
"QE3 will stimulate the US economy and the ECB’s decision looks like it might be on the road to sorting the eurozone issues," he said.
"Also, Chinese authorities have stated their intention to address their market slowdown by announcing the go-ahead of large infrastructure investments. All these measures look very good for industrial commodities."
, who heads up the £226.8m Investec Enhanced Natural Resources
portfolio, is also positive on gold equities, believing many companies have been unfairly de-rated.
"Gold companies have had a period of underperformance over the last few years and there seems to be a number of causes for this," he said.
"A major reason is because we have seen a number of gold companies de-rated recently. In the past, most investors would get exposure to gold prices through the mining stocks, but now they can gain exposure through ETFs."
"However, this de-rating has gone too far. The ETFs have performed poorly recently, with poor cost control and capital allocation."
He also points to specific management changes within old corporates as a reason to be positive about the sector.
According to FE Analytics
, Cheveley’s Investec Enhanced Natural Resources fund has 7.9 per cent in gold equities,
making it one of its biggest single-commodity positions.
Hargreaves Lansdown’s Rob Morgan says there are a number of options available for investors who want exposure to gold equities, but says two stand out from the crowd.
"There are a couple of funds with exposure to gold mining stocks and gold that we recommend to investors," he commented.
"There is Blackrock Gold & General
which is a large fund with exposure to large companies. It has a general mining component that also holds precious metals in general."
"Smith & Williamson Global Gold
concentrates on smaller explorers and distributors of gold."
"It is based primarily in Canada and has a close relationship to the gold mining community there. It is a high-risk fund but that is usually the case for funds exposed to smaller companies."
"It is also extremely volatile, but if the gold price rallies again then I would fully expect the fund to have strong returns for its investors."
Performance of funds over 5-yrs
Source: FE Analytics
Over five years, the BlackRock and Smith & Williamson funds have returned 54.43 and 63.83 per cent respectively.
The latter has been more volatile and outperformed during up markets, but BlackRock Gold & General has a better record during falling ones.
According to FE Analytics
, Smith & Williamson Global Gold and Resources has £62.3m assets under management (AUM) and its total expense ratio (TER) is 1.75 per cent.
It is available for a minimum investment of £1,000. The £2.5bn BlackRock Gold & General fund has a minimum investment of £500 and a TER of 1.91 per cent.