LIPPER AWARDS-Gold fund investors dig for deals in the mining sector

Fri Mar 21, 2014 12:01am EDT
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By Conrad de Aenlle

LONG BEACH, CALIF., March 21(Reuters) - Gold has been a highly coveted asset for millennia, but its appeal lately has been intermittent at best. The price of gold has climbed about 11 percent in 2014 through March 19, but is still 29 percent below the all-time high of $1,895, set in 2011, after a dismal run last year.

Investors could have done worse - by investing in mining stocks, which lost about two-thirds of their value during the decline in the price of gold.

Running a fund that concentrates on mining stocks is difficult amid such a backdrop, but John Hathaway, lead manager of Tocqueville Gold, and Joseph Foster, manager of Van Eck International Investors Gold, have done it better than most. Hathaway's fund was recognized at the 2014 U.S. Lipper Fund Awards in New York on March 20 as the best precious-metals fund for the second straight year and for its five-year performance. The Van Eck fund was honored for its 10-year results.

The managers highlight several reasons for the decline in gold, including reduced inflation expectations and a heightened appetite for risk that made hedging against disaster an afterthought.

"People weren't worried about risk anymore," Foster observes. "They saw the economy getting back on track - no signs of inflation, no adverse consequences of (Federal Reserve) policies. If people aren't worried about risk, there's no need for gold."

There has been a renewed concern about risk lately. Russia's military intervention in Ukraine in early March led to a nearly 2 percent spike in gold the next trading day, one of those events that reminds investors why they own gold in the first place - to prepare for some problem, economic or political, that they have no idea they need to prepare for.

Hathaway considers mining stocks the best way to be prepared because they're highly leveraged to the price of the metal. Any move above or below a company's production costs can produce significant changes in profitability and move its stock accordingly.

Hathaway is not exactly a cheerleader for the mining business. In his opinion, the people in charge are not the cream of the managerial crop. But that makes it easier to spot the well-run companies.   Continued...