Most global fund portfolio managers and strategists are not enthusiastic about investing in gold — and those who think U.S. growth will surprise on the upside are distinctly negative.
But there is a minority view — mainly pessimistic managers and strategists — who like gold because they expect investors to keep seeking its safety in the wake of more and more evidence of how hard it’s going to be to solve the U.S.’s and Europe’s fiscal problems.
Further muddying in the waters is the manner in which gold producers’ shares have lagged bullion in price. In mid-December, gold shares were down by about 16% from Jan. 1, 2011, while the gold bullion price was up by 11%, says Darren Lekkerkerker, co-manager of Fidelity Global Natural Resources Fund, sponsored by Toronto-based Fidelity Investments Canada ULC.
Norman Raschkowan, chief North American investment strategist for Mackenzie Financial Corp.’s Maxxum funds, notes that gold stocks don’t pay as much on their dividends as they could. This has lead to concerns that these companies will use the money they save in this way for poor acquisitions.
Lekkerkerker agrees, noting that investors don’t have to hold shares to have exposure to the price of gold. Instead, they can invest in gold-based exchange-traded funds. However, he does think gold shares will outperform the price of bullion this year.
Here is a look at some gold-related investments that are attracting interest from portfolio managers:
> Goldcorp Inc. is a big favourite of Bob Lyon, portfolio manager with AGF Management Ltd. in Toronto. He notes that Goldcorp is generating all-time highs in cash flow and is expected to increase production by 50%-60% over the next four years.
Scot Vali, resources portfolio manager with CI Investments Inc. in Toronto, also favours Goldcorp, based on its good growth prospects and its focus on organic growth.
> B2Gold Corp. is another of Lyon’s picks. He points to both its good cash flow and its favourable exploration prospects, including a large joint venture.
> Eldorado Gold Corp. is favoured by Lekkerkerker, who says it is a “very low-cost producer,” has disciplined management and good exploration potential.
> Royal Canadian Mint is an ETF favoured by Lekkerkerker.
> Rubicon Minerals Corp. is favoured by Chris Holden, portfolio manager with Investors Group Inc. in Winnipeg. He notes the high grade of gold the company has discovered near Red Lake, Ont. IE