The "Outlook" on Gold

10/03/2003 12:00 am EST


George Gulla

Vice President, Standard & Poor's

"Gold funds have been getting a lot of attention this year, with investors pouring in new money in hopes of picking up strong returns," notes Standard & Poor's The Outlook. The service has profiled three recommended gold funds, as well as the favorite stocks held by each of these funds.

In its review of gold funds, The Outlook says, "Here are three no-load choices with good long-term records, no initial sales charge and reasonable expense ratios:


"Of the three, American Century Gold (ACGGX ) offers the purest play in gold. The portfolio does not invest in other precious metals like silver or platinum; it sticks to gold. And the team of portfolio managers likes to keep the fund fully invested, so the cash position is often only about 1%. The fund outperformed the S&P 500 in the second quarter of 2003, as well as for the one-, three-, and five-year periods ended in August. The fund’s top three holdings are Barrick Gold (ABX NYSE), Newmont Mining (NEM NYSE), and Placer Dome (PDG NYSE). This fund’s portfolio managers see continued gains for gold stocks ahead, especially because merger and acquisition activity is picking up. Anglogold and Harmony are both among the fund’s top ten holdings, which also include Australia’s Newcrest Mining (NCMGF NASDAQ), Canada’s Kinross Gold (KGC NYSE), and South Africa’s Gold Fields (GFI NYSE).


"The manager for Tocqueville Gold (TGLDX ), John Hathaway, also sticks only to gold. However, he accumulated cash worth 15% of the fund’s assets by the end of the second quarter, in part because of the huge inflows of new money into the portfolio this year and wants to wait for good opportunities in the gold industry before putting it to work. However, Hathaway does not believe gold is overvalued, despite its run-up since the 2001 terrorist attacks. Rather, he believes the stock market is overvalued and that investors will migrate from paper to tangible assets. He feels gold is the tangible asset of choice. Tocqueville’s top ten list differs a lot from American Century’s. Hathaway is not as enamored of North American gold mining stocks, and his top ten list shows greater geographical diversification. The top holding in the Tocqueville portfolio is Placer Dome (PDG NYSE). But Peru’s Minas Buenaventura (BVN NYSE), the U.K.’s Randgold Resources (RANGY NASDAQ), and Ghana’s Ashanti Goldfields (ASL NYSE) are also prominent.


"USAA Precious Metals (USAGX ), while concentrating primarily on gold, also invests in other precious metals and minerals. Although the top ten holdings are dominated by gold stocks, they also include Impala Platinum Holdings (IMPAY NASDAQ) and Aber Diamond (ABER NASDAQ). Portfolio manager Mark Johnson says the ability to move out of gold and into other metals gives him a protective hedge that gold-only managers lack. However, for the time being, he’s not using the hedge. Johnson believes that gold has only just begun to rally. Even so, Johnson warns investors not to take too great a leap into gold. He calls his fund a 'diversifier' to an equity-loaded portfolio and recommends putting 4% or 5% of total investment assets into the fund to boost overall returns. That strategy certainly worked over the past five years, when the fund averaged an annual gain of 31.4%. Johnson’s current favorites include Newcrest Mining (NCMGF NASDAQ) and Barrick Gold (ABX NYSE). He recently added to positions in Lihir Gold (LIHRY NASDAQ) in Papua New Guinea, Glamis Gold (GLG NYSE) in Canada and Hecla Mining (HL NYSE) in the U.S."

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