Large gains in equity values this year have surprised many and made investors wary of a correction. However, our research shows the move in gold prices from their lows early this year has been pivotal, as more than 70% of the industry is now profitable from less than 40% at the beginning of the year. However, while we expect gold prices to continue to rise in the medium term, further gains in equities will be driven less by prices and more by each company’s ability to generate good returns. This is the most exciting point of the cycle for an active fund manager as good stockpicking is crucial and the opportunity to outperform is large.
Markova:
The Smith & Williamson Global Gold Fund adopts an actively managed long-term strategy, investing across commodities, sectors and market capitalisations.
The fund provides exposure to an asset class that is not correlated to the general equities market and acts as a good portfolio diversifier. As it invests predominantly in precious metals, its performance is strongly influenced by the movements in the gold price.
This year, gold has posted strong performance driven by a push to negative rates in Europe and Japan, Brexit and diminished US Fed rate hike expectations. In this environment, gold is fulfilling its classic role as a safe-haven asset and store of value.
Negative interest rates have also buoyed gold demand by cutting the costs of carrying it and potentially capping US Fed interest rate increases. As the gold price has risen, gold equities have outperformed, offering leverage in a rising gold price environment.
The fund typically invests in gold and other precious metal equities but we can invest up to 25% in other diversified metal and mining-related stocks. We also invest in gold bullion and/or cash depending on the market cycle and the team’s macroeconomic outlook. This allows investors to gain exposure to commodities and benefit from changes across economic cycles.
Portfolio construction is determined by top-down analysis, which includes analysis of macroeconomics, supply/demand forces and global growth forecasts. Exposure to other metals, such as diamonds, base metals and aggregates, is actively managed based on economic conditions and valuations.
