Ignored a decade ago, gold mutual funds are riding a multi-year bull market in bullion and dominate the list of top-performing sector funds over the past three, five and 10 years, according to Morningstar.
In the most unsettling economic times since the Great Depression, global investors are hoarding bullion and stockpiling gold mining stocks, voting their feet against profligate government spending, massive central bank easing and the risk of inflation. Many say gold can effectively hedge against both inflation and deflation.
With belief in such magical powers gaining currency, it’s fair to ask whether gold is in a bubble.
But to John Hathaway, manager of the Tocqueville Gold Fund, gold is a bubble only if you believe that politicians and bankers can stave off deflation. The real bubble is in money being printed by central banks, he says. His fund is up an astonishing 50% over the past year and has beaten all of its peers with average annual returns of nearly 26% over the past 10 years.
Hathaway says market forces are deflationary while government responses are inflationary, giving us the worst of both worlds. He sees gold’s run as only at the beginning of the third quarter of a football game — a point where people are jumping on the bandwagon but not yet “irrationally exuberant.”
Abhay Deshpande, co-manager of the five-star First Eagle Gold Fund, is a bit more cautious, but also sees gold as a hedge against “extreme outcomes” such as inflation and deflation, even though the chance of financial disaster may be small. Deshpande sees risks building in gold’s price — “gold may not always glitter from current levels” — but like Hathaway views the metal as a hedge against human folly.
Here then are five gold mutual funds that can put sparkle in your portfolio if gold continues to shine.
They are the top five performers in the sector over the past 10 years. But be forewarned; there is only one no-load fund among those rated four or five stars by independent rating firm Morningstar, and the expenses of some of the funds are steep. So far, however, shareholders have been amply rewarded.
#1 – Tocqueville Gold Fund (TGLDX)
Manager: John C. Hathaway (since 1998)
Total assets: $1.8 billion
Minimum initial investment: $1,000
What’s not to love about this four-star fund? The Tocqueville Gold Fund (TGLDX) is the top performing gold mutual fund over every time period from year-to-date to 10 years. It’s also no load, has reasonable expenses and it’s named after a Frenchman who had good things to say about Americans. The fund has delivered average annual returns of nearly 26% over the past 10 years and is up 50% over the past year. If manager John Hathaway had a few more years running the fund, he might have the best 15-year record as well.
One of Hathaway’s top holdings is Canadian producer Osisko Mining, which he has owned for more than six years — since it traded for 50 cents per share. Osisko is now trading at $13. Hathaway likes the management, which is heavily invested in the company. Another plus is that the company operates in the politically favorable jurisdiction of Quebec. Nearly 9% of the fund was invested in bullion directly, rather than in gold shares, as of June 30. Hathaway says bullion is safer for more conservative investors since it is not as volatile as gold-mining stocks.