5 Gold Mutual Funds to Play the Bullion Boom

Funds focus on actual gold assets as well as miner stocks

By William Ehart

http://invstplc.com/1frR5yE

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
Expenses: 1.50%
Load: None
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.

 

#2 – First Eagle Gold Fund Class A (SGGDX)

Manager: Rachel Benepe, Abhay Deshpande (both since 2009)
Total assets: $2.7 billion
Expenses: 1.26%
Load: 5.00%
Minimum initial investment: $2,500

There are three five-star gold funds in Morningstar’s universe — and all of them are run by First Eagle. The First Eagle Gold Fund Class A shares (SGGDX) — formerly the SoGen Gold Fund — have the third-best 10-year record in the sector, with average annual returns of nearly 25%, compensating investors for the upfront sales load. Co-managers Rachel Benepe and Abhay Deshpande have a tall order trying to fill the shoes of legendary value investor Jean-Marie Eveillard, who retired from active fund management early last year.

More than 16% of the fund is invested in bullion, perhaps reflecting their caution about the gold market, as gold shares are more volatile than bullion. The fund’s second-largest holding is Randgold Resources Ltd. (NASDAQ: GOLD), a company with a solid exploration record whose mines are in West and Central Africa.

#3 – OCM Gold Fund Investor Class (OCMGX)

Manager: Greg Orrell (since 1988)
Total assets: $171.3 million
Expenses: 1.94%
Load: 4.50%
Minimum initial investment: $1,000

Here’s a top-performing but tiny fund run by the same manager for 22 years. OCM Gold Fund Investor Class (OCMGX) carries a sales load and hefty annual expenses, but its historical performance has compensated for those costs. The four-star OCM Gold Fund has the fifth-best record in the sector over 10 years with annual returns of nearly 24%. The fund has gained 29% over the past year.

Gold bullion is not among the fund’s top five holdings. The fund’s largest holding is Goldcorp. Inc. (NYSE: GG), a Vancouver-based producer with mines from Canada, the United States, Mexico and Central and South America. OCM Gold’s second largest holding is Randgold Resources Ltd. (NASDAQ: GOLD).

#4 – GAMCO Gold Fund Class AAA (GOLDX)

Manager: Caesar M.P. Bryan (since 1994)
Total assets: $636.6 million
Expenses: 1.46%
Load: None
Minimum initial investment: $1,000

Morningstar recently downgraded GAMCO Gold Fund Class AAA (GOLDX) from four stars to three, but its 10-year average annual return of 24.12% ranks fourth among all gold funds, and it is one of the few top-performing no-load funds in the sector. And it has a veteran, well-respected manager in Caesar Bryan with 16 years at the helm.

Randgold Resources Ltd. (NASDAQ: GOLD) and Goldcorp. Inc. (NYSE: GG) are Bryan’s top two holdings, followed by Agnico-Eagle Mines Ltd. (NYSE: AEM), a Toronto-based producer with mines in Canada, Finland, Mexico, the United States and Argentina. Gold bullion is not among the fund’s top holdings. The portfolio is concentrated with 62% of assets in the top 10 holdings.

#5 – Van Eck International Investors Gold Fund Class C (IIGCX)

Manager: Joseph M. Foster (since 1998), Charl P. De. M. Malan (since 2005)
Total assets: $1.4 billion
Expenses: 2.27%
Load: 1.00 percent deferred
Minimum initial investment: $1,000

Van Eck International Investors Gold Fund Class C (IIGCX) has a long and distinguished history investing in gold, and this four-star fund carries the second-best 10-year record in the sector with average annual returns of more than 25%. However, the annual expenses of 2.27% are hard to justify even if past performance has made up for them. The past doesn’t predict the future. Still, the fund is run by experienced hands who have shown consistently they can beat most of their peers. The fund has surged 24% year to date, nearly 42% over the past year and nearly 28% annually over the past five years.

Top holdings include Randgold Resources Ltd. (NASDAQ: GOLD) and Goldcorp. Inc. (NYSE: GG) . Gold bullion is not among the top holdings.

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