Can’t take the shine off gold

The world’s favourite precious metal remains a solid investment. The key, some fund portfolio managers say, is to invest in bullion and buy shares in only a few outperforming gold-mining companies

By: Catherine Harris
January 15, 2013 November 6, 2019
00:00

Gold remains much in favour among many strategists and fund portfolio managers because they believe bullion’s price will keep rising as long as interest rates remain low in the industrialized world.

However, there is a minority view. One group of analysts finds it so difficult to predict the price of bullion that they prefer not to invest in it at all. As Lloyd Atkinson, an independent financial and economic consultant in Toronto, puts it: “The price could be US$3,000 [an ounce] a year from now or it could be US$300 an ounce. Who knows?”

Then there’s a group that thinks U.S. – and, thus, global – growth will surprise on the upside, which would pull down bullion prices. For example, Jean-Guy Desjardins, chairman, CEO and chief investment officer with Fiera Capital Corp. in Montreal, believes the U.S. gross domestic product could grow by 3.5% this year – far higher than the 2% to 2%-2.5% consensus prediction.

BULLION OVER STOCKS

Among portfolio managers who are investing in gold, most prefer to invest in bullion rather than the shares of gold-mining companies. That’s because these firms have had such a poor record in increasing earnings – despite the huge increase in bullion prices – that their share prices have not risen in tandem with the price of bullion. These stocks are now “show me” stocks. That is, few investors are prepared to consider buying them until the companies prove that they are making good capital-allocation decisions regarding expansion, acquisitions and building shareholder value.

Meanwhile, other portfolio managers favour gold-based exchange-traded funds or exchange-traded receipts issued by the Royal Canadian Mint, which are traded on the Toronto Stock Exchange.

Nevertheless, there are some companies that portfolio managers think present investment opportunities. Darren Lekkerkerker, a portfolio manager in Toronto with Pyramis Global Advisors LLC, a Fidelity Investments company, and co-manager of Fidelity Global Resources Fund, sponsored by Toronto-based Fidelity Investments Canada ULC, prefers Yamana Gold Inc., which, he says, has done a “good job in producing, managing costs and developing a pipeline of new projects.”

Bob Lyon, senior vice president and portfolio manager with AGF Management Ltd. in Toronto, also favours Yamana’s “focus on operations and costs” and its approach to capital spending. The firm doesn’t overspend, he says, and it is “extremely cautious about which projects to pursue and then focuses and concentrates on those.”

Yamana, Lyon adds, is a company investors are willing to pay for, so the share price is up. But he thinks the valuation is still attractive, given the firm’s growth prospects.

Lekkerkerker also points to Agnico-Eagle Mines Ltd. because of its management team and its high-quality assets in “safe” regions such as North America and Finland.

Belo Sun Mining Corp., a small-cap Canadian firm, is another of Lyon’s picks. He says its Volta Grande mining property in Brazil looks like it’s a world-scale, high-grade, open-pit gold deposit.