As the price of gold threatens to go ever more ballistic, it is not surprising that among the non UK equity focused IMA sectors Specialist constituents come in a close third after Asia Pacific ex Japan and Europe ex UK as being of interest among Trustnet portfolio users. Two of the most visited fund factsheets on Trustnet are in this sector, focused on gold and natural resources, while the list of best performers across all sectors in the past year include a number of Specialist funds.
However, it is a heterogeneous area, and this month we speak to managers and intermediaries, as well as looking at the performance data of constituents, to seek out comment on the multiple investment ideas on offer.
Over the year to 13 November, the top six funds in the sector come from this sector led by
CF Ruffer Baker Steel Gold with a total return of 171.9 per cent, according to
Trustnet data.
This fund’s manager, Trevor Steel, explains why this sector and his fund are doing well, while the managers’ of the fourth and fifth best performing funds -
JPM Natural Resources and
BlackRock Gold & General also set out their views.
Trevor Steel, fund manager,
CF Ruffer Baker Steel Gold:
"Our fund has performed strongly because the gold price has hit new highs, as investors increasingly see it as an alternative asset and protection from devaluation of what is effectively the world reserve currency, the US dollar. Investors are buying gold as an insurance against the risk of the US reducing the burden of its indebtness through inflation.
It is very supportive for gold prices that the
Bank of India has recently purchased 200 tonnes of gold from the
IMF. Historically, gold has tended to move from countries getting relatively poorer to those getting relatively richer so it is not surprising that the BRICs (Brazil, Russia, China and India) have been buying gold and this is likely to be a long-lived trend.
It is rational to assume that banks which are new buyers are likely to follow this policy for at least the next five to 10 years.
Meanwhile, gold equities were very oversold in late 2008 because of the deleveraging crisis impacting equity markets. Although there has been a 'V' shaped recovery in gold equities since the October 2008 lows, shares remain attractively priced relative to the current all time high in bullion prices, and they are not pricing in the current gold price.
We think the gold price could hit $1,200 an ounce by the end of 2009 because technically the market looks well supported. Therefore, I would expect further strength in gold equities.
The biggest short-term risk for gold equities is a general market correction that could occur due to fears about removal government fiscal stimuli.
Other commodities have also rallied impressively from 2008 lows and are arguably already pricing in a global economic recovery, which may prove over optimistic. There is clearly a risk that base metals will underperform gold – especially as people buy gold as an alternative currency independent of the level of economic activity."
Ian Henderson, fund manager,
JPM Natural Resources:
"Since 2002, there has been a massive recovery in commodity prices because of rising demand from emerging markets, notwithstanding the sharp correction in 2008. I expect prices to remain firm as developing economies industrialise.
Quantitative easing (QE) has created a vast amount of money while interest rates are close to zero so people are looking to buy hard assets.
Our fund has been helped by its allocation, which currently has 34 per cent in gold and precious metals in contrast to other periods when allocation to this area has been as low as 20 per cent. Allocation to base metals and diversified mining companies is 32.5 per cent and energy (including coal and Uranium) accounts for 25.1 per cent.
Evy Hambro, manager,
BlackRock Gold & General:
"Metals and mining have been very strong this year because of demand for commodities has increased with recovery. The destocking of commodities which took place in 2008 has now disappeared, and restocking and normalisation has begun.
Our fund has done well because it is invested in companies which produce gold and other precious metals such as platinum, and there have been strong moves upwards in their share prices. The prices of the underlying metals are the main drivers of the share prices of these companies, though how they are managed, their cost controls and operating expenses also have an influence.
We think the metals and natural resources sector is poised for continued strong performance for some years to come. Metals such as copper, gold and iron ore are in demand from some of the world’s largest populations, and India and China in particular are likely to support them for years to come.
Their prices will also be supported by constraints in production leading to high profitability for the producers. The recovery in Europe and the US will enhance this effect."