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Recognizing the high quality of international gold knowledge and global investing pedigree that is available, this week’s profile has turned its focus to the British based BlackRock World Gold Fund (MUTF:BWGAX). Since its inception date of December of 1994, the fund has achieved numerous awards globally for its performance.
In the beginning of February, we introduced a new weekly series of precious metal fund commentaries and analyses to support a number of exciting new tools and resources developed within the Resource Investing News Network including the Gold Stock Index. We are pleased that our editorial efforts have enhanced the content and applications for investors and have maintained our top quality commitment to add value for our readership.
In the past the funds that have been featured have primarily been managed by asset managers domiciled in either the United States or Canada. Recognizing the high quality of international gold knowledge and global investing pedigree that is available, this week’s profile has turned its focus to the British based BlackRock World Gold Fund (MUTF:BWGAX). Since its inception date of December of 1994, the fund has achieved numerous awards globally for its performance and over the past 5 years has garnered over 20 awards.
Portfolio management
The fund’s London-based team is led by joint Chief Investment Officer Evy Hambro who has been with the firm since 1994. Mr. Hambro was the recipient of 2 prestigious Sauren Golden Awards last year acknowledging Mr. Hambro’s management skills. The award judges the plausibility of the investment philosophy, the consistency in implementing it, the extent to which pragmatism plays a role, the orientation towards market indices and the process of generating investment ideas. The fund manager’s team contribution, his career-path and the continuity in performance in the context of overall market conditions and inefficiencies in the investment universe are considerations.
Members of the team include Richard Davis, Catherine Raw, Thomas Holl and Clive Burstow focusing on mining stocks. The team includes a considerable depth of practical mineral exploration and professionally trained geological expertise, in addition to compelling financial analytical fundamentals.
Performance
The fund has a strong long-term performance history outperforming its benchmark FTSE Gold Mines index in nine of the past 10 years. Its only under-performance was in 2008, with the fund declining 34.8 percent relative to the index contraction of 19.2 percent. Performance relative to the benchmark index was strong for the year, as at the end of March, with the fund demonstrating a 33.9 percent return versus the index return of 30.3 percent.
Management style
Portfolio construction is primarily bottom-up, with stock selection incorporating the team’s top-down view of world commodity markets. Under the stewardship of Mr. Hambro, the process is team-driven without constricting specific country or sector responsibilities but contingent upon the quality of investment theses by committee. Research centers on the extent of reserves and the cost of production with strong attention to factor currency risk into the recommendations.
Gold equities are ranked on their expected performance at various gold price levels, with preference given to those where performance is geared to movements in the gold price. The implication is that this should allow the fund to outperform when gold is rising, but when the prices weaken, consideration is given to the effect of other metals the companies may also mine.
Investment considerations
The fund invests across the market capitalization range with a strong predisposition towards the larger producers and positions in small-caps normally attributing for roughly 2 percent of assets. Physical gold bullion securities are often used as a cash substitute to enhance beta. The annual management fee is 1.75 percent of assets and the size of the underlying fund is $8.6 billion of assets under management.
Portfolio activity
According to the most recent disclosure the fund took part in a fundraising for Banro (TSX:BAA) (AMEX:BAA), the Canadian listed gold producer operating in the Democratic Republic of Congo. The company is developing an asset in the north-east of the country and is taking a phased approach in order to control risk. The portfolio management has also reduced its position in Newmont Mining Corporation (TSX:NMC) (NYSE:NEM), which had underperformed expectations.
Outlook and positioning
During an interview with Financial Times, Mr. Hambro, explained one important long term driver for the climb in gold prices has been the declining trend in production. Prices need to rise further before mining companies will think it will pay to invest in building new mines. With the current unrest in the Middle East ongoing, gold’s ‘safe haven’ qualities were much in demand as last month drew to a close. High levels of inflation in Asia have also been supportive of the macro economic backdrop for the yellow metal. There are speculations about a return to normalized interest rate cycles in the Eurozone and elsewhere, but with inflation at the current levels, real interest rates look set to remain negative which is usually supportive of gold.
Top holdings
The top 10 positions combine to account for 56.6 percent of total assets including:
Newcrest Mining Limited (ASX:NCM), Goldcorp Inc. (TSX:G), Kinross (TSX:K), Fresnillo (LON:FRES), Minas Buenaventura (NYSE:BVN), Inds Penoles (ETR:4FO), Impala Platinum Holdings Limited (PINK:IMPUY), Randgold Resources (NASDAQ:GOLD), Newmont Mining Corporation (TSX:NMC) (NYSE:NEM), Agnico-Eagle Mines (TSX:AEM).
