Cheveley:
The Investec Global Gold Fund takes a structured, two-pronged approach, combining a top-down perspective with fundamental research and modelling.
Investing in gold and gold equity funds has always attracted a wide range of opinions. There are those who fundamentally do not believe in the argument for buying gold in any circumstance. At the other end of the spectrum are the ‘survivalists’, who believe in holding gold coins and tins of food to protect themselves when society as we know it breaks down.
In the middle are a broad base of investors who see the usefulness of gold and gold equities as diversifiers within their portfolios but still worry about how best to gain exposure.
First, we take a top-down perspective by thoroughly assessing the macroeconomic environment and drivers of the gold price. Second, we look at our investment universe and use fundamental research and modelling to assess the companies themselves.
Through this combined approach we build a portfolio of around 40 stocks, weighted according to the risk contribution of each position and the overall amount of risk we wish to take.
Today, we remain bullish on the gold price as it acts as a safe haven from the huge political uncertainty engulfing Europe following the UK’s vote to leave the EU.
This is also likely to give the US Federal Reserve more reason to delay further rate rises and may lead to additional easing of financial conditions around the world. When one adds the uncertainty surrounding the US election later this year and the nervousness surrounding all equity markets, the attraction of gold is undeniable.
The positive backdrop of the gold price means we are concentrating on gold equities that have leverage to the rising price.
Those companies that can continue to produce strong returns on capital through the cycle and have growth projects to take advantage of the current prices are favoured, along with those that are potential targets for larger companies.
In the large-cap space we prefer companies such as Newcrest Mining, which not only has one of the lowest cost mines in the world at Cadia Hill in Australia but is also paying down debt rapidly and in the process of turning around its Lihir mine in Papua New Guinea.
