Safe as gold
London - Gold will stay strong due to a lack of alternative
havens for investors operating in a slowing global economy, top performing
commodity fund managers told Reuters after taking a defensive approach and
going into cash during September's gold selloff.
"We consider the current weakness in gold as temporary
and also the slump in commodity prices should come to an end soon," said
Kurt Hug, an investment adviser for the Antares Precious Metals Fund.
The fund came third in the Lipper Global commodity sector
rankings in the third quarter of 2011 by keeping a high percentage of
"strategic liquidity" in Swiss francs in anticipation of "a
severe, but short-lived commodity shock".
Fund research and analysis organisation Lipper, a Thomson
Reuters company, covers more than 108 000 funds. The commodity segment covers
funds investing in both commodities futures and natural resources-related
Reuters approached the best performers to ask for details of
their winning strategies.
Also staying defensive was Paula Bujia, manager of the $330m
Schroders Gold and Precious Metals Fund, which came fourth. Steering clear of
precious metals other than gold, and investing in mid-cap gold miners rather
than seniors and juniors, helped her outperform, she said.
The gold price has risen by nearly 17% so far this year,
having hit a record $1 920.20 an ounce in early September before correcting
sharply downwards. It was around $1 655/oz on Friday.
Bujia said gold's correction from its peak was still only
half of its declines in 2008 and she would wait for more selling of gold,
particularly in exchange-raded funds (ETFs), before she felt able to resume
aggressive buying of other precious metals and of mining equities.
"In this environment, it's very difficult to believe
that other precious metals could do well," she said. "Until we see
more capitulation in gold and more ETF outflows it is not the right time to
Bujia is sticking with her gold tilt, saying the recent
correction has been meaningful, but gold is not yet at a capitulation point.
She believes gold may trade sideways for another couple of months, or come off
Precious metals funds dominated the upper end of the Lipper
league table of over 130 funds in the third quarter.
The LGT Dynamic Gold Fund came first, returning 9.36% over a
quarter which saw the commodity index S&P GSCI fall 11.69%.
Peter Sigg, head of investment management for commodities at
LGT Capital Management, said the $73m fund had been invested between 96% and
115% over the quarter.
"We have been slightly leveraged during the move to
(gold at) $1 900 (an ounce) and we were slightly invested in cash during the
sell-off in September," he said.
Reuters' analysis of the Lipper data showed that the third
quarter was testing for all commodity managers, with the average
actively-managed fund in the Lipper Global commodity sector down 8.34%.
S&P said equity market weakness and dollar strength had
culminated in the worst quarter for the S&P GSCI since the fourth quarter
Energy prices came under pressure due to fears of slowing
demand and even precious metals did not escape, with profit-taking overwhelming
the market in September. The S&P Precious Metals index ended September down
more than 14%.
"Our conclusion of the last month is that gold is not
immune in a very negative global commodity and equity market environment, which
was similar to the autumn 2008 experience," said LGT's Sigg.
But, like Bujia and Hug, he remains relatively bullish on
gold, saying that while the recent selloff had washed out the CFTC net long
positions held by professional investors, individual investors had only
marginally reduced their physically-backed gold ETF holdings.
Bujia also noted that an equity exposure of just 20% to 25%
may have protected her from stock market losses, helping her outperform those
with higher equity tilts.
There is still a big gap between the performance of gold
futures and gold mining stocks, which she said is partly because the miners are
unable to decouple from overall equity markets.
"When you have a fear trade, gold can perform well but
not the equities," she said.
She believes gold equities offer great value, with record
earnings and cash levels and increasing dividends, but these fundamentals will
not come good until the stock market calms down.
Bujia remains cautious, focusing on mid-caps such as
Randgold Resources, Yamana Gold and Eldorado, which she said have good
Among the more diversified funds, Neuberger Berman's $100m
Enhanced Commodities fund, managed by Gresham Investment Management, also
acquitted itself well largely due to a fairly high exposure to precious metals.
Douglas Hepworth, director of research at Gresham, added
that a tilt to crude oil over natural gas, and to meats over grains and softs,
"Macroeconomic factors have been the drivers of the
entire commodities asset class for several months, and nothing there looks
particularly encouraging," he said.
The worst-placed funds were the BI Basic Long Commodity
Fund, which invests in natural resource equities and futures and cannot go
short, and the BBGI Commodities Fund, investing in a mix of commodity ETFs and