Dynamic Precious Metals Fund

The Dynamic Fund family collected an impressive display of trophies last year at the Morningstar Canadian Investment Awards in December. The fund won both the advisers’ choice and analysts’ choice “fund company of the year” awards, the former category based on voting by financial advisers, and the latter judged by fund analysts. The fund company also took home the most awards of any firm in the industry at the 2011 Canadian Lipper Awards, receiving a total of sixteen trophies across a broad range of categories.

Fund performance

Last year, the fund performed strongly demonstrating a 68.4 percent return for investors, outperforming both the group average and the Globe Precious Metals Peer Index at 58.9 percent and 58.0 percent respectively. The Dynamic fund also yielded superior returns during the 2008 calendar year, beating the group average by more than 13 percent and the benchmark index by almost 8 percent, over a one year period.

Having a history that dates back to January 1984, the fund has outperformed the group average and index over a three, five and ten year period with compound annualized returns of 18.3 percent, 22.4 percent and 27.4 percent for the relevant reporting periods, as at the end of last month.

Portfolio management

The lead portfolio manager for the fund is Robert Cohen, a mineral process engineer by training who completed his Bachelor of Applied Sciences in Mineral Process Engineering at the University of British Columbia in 1992. In 1998 he received his Master’s in Business Administration and in 2003, Mr. Cohen received his CFA designation. Initially joining Dynamic in 1998 as a member of the global equities team, his experience in the mining industry is extensive and includes work as an engineer, assistant to the V.P. of South American Projects for a junior mining company and as a Corporate Development Advisor for an international gold mining firm.

Investment philosophy and style

In exclusive commentary with Gold Investing News, Mr. Cohen revealed, “I never favour additional volatility. I do not associate stable companies, however, as always having less volatility. Plenty of producers have earnings misses, production issues that also lead to volatility. Meanwhile, exploration companies have no earnings, and therefore, can in fact, have less volatility.” The idea is that gold can reduce portfolio volatility; an objective for the fund is exposure to companies that are going to be tomorrow’s rising stars while a portion of the portfolio serves as “ballast.”

The fund is managed according to the conceptual framework that contends falling supply coupled with strong demand has created an environment conducive to the exploration and development of gold and various precious metals. Mr. Cohen maintains a bullish view on gold, “We are forecasting gold prices north of $1600 in a year from now.” A concern regarding inflation and the direction of the US dollar have renewed institutional interest in gold as many investors seek an element of protection against the erosion of their wealth. The manager maintains the view that precious metals act as insurance for an equity portfolio and that gold has a low to negative correlation to the rest of the mainstream asset classes such as stocks and bonds.

The defensive role that gold plays in a portfolio should not be ignored and the manager recommends that investors typically have approximately 5 percent of their portfolios invested in precious metals. The fund is considered to be a blend of both value and growth stocks with a bias for companies with mid size capitalization.

Considerations

The fund features a Management Expense Ratio (MER) of 2.6 percent of net assets, coming at a slightly higher price point to the median as reported by Globefund. As a category benchmark the median MER for the precious metals category is 2.3 percent. The total assets of the fund are approximately $1.1 billion, and with 58 holdings it is managed with a relatively high concentration of Canadian publicly traded companies. Investors will note that the allocation, which indicates Canada at 76.5 percent, Australia at 13.1 percent, United States at 5.1 percent, and the United Kingdom at 0.3 percent, is not indicative of the exploration, development and mining operational exposure of the holdings.

Management picks

Mr. Cohen provided some insight for investors with thoughts on companies that might be of interest, “Perseus Mining Limited(ASX:PRU) and Osisko Mining (TSE:OSK) are two development companies that we currently favour as we believe that as these emerging producers start up their first mines this year, these stocks will get re-rated by year-end. We also like up-and-coming companies like Keegan Resources (TSX:KGN) with a solid resource endowment, however, in earlier stage of development of their first mine in Ghana.”

Top holdings

The competitive nature and industry compliance requires that the fund disclose financial details quarterly, and the most recent top 10 positions in the fund include:

Osisko Mining (TSE:OSK), Kinross (TSX:K), San Gold Corporation (TSX: SGR), Perseus Mining Limited(ASX:PRU), Aurizon Mines Ltd. (TSE:ARZ), Goldcorp Inc.(TSX:G), Alamos Gold Inc.(TSE:AGI), Allied Nevada Gold Corp.(AMEX:ANV),  Agnico-Eagle Mines (TSX:AEM) , Sabina Gold & Silver Corp. (TSE:SBB)

These companies represented 64.6 percent of the fund.