GAMCO World Gold Fund

By Dave Brown – Exclusive to Gold Investing News

Gabelli Asset Management is a widely recognized New York based provider of investment advice that was originally founded in 1977 as an institutional broker-dealer. It has since grown into a diversified financial services corporation which offers investors, among other products, exposure to the precious metals industry.  The firm features the GAMCO World Gold Fund (MUTF:GOLDX), which has an inception date of July 11, 1994. The portfolio manager has consistently demonstrated an appetite for relatively larger gold mining companies with attractive reserves and production levels.

Portfolio manager

The fund’s portfolio manager, Caesar Bryan, joined Gabelli Funds in 1994 and has been managing the GAMCO Gold Fund since its inception. Prior to joining Gabelli, Mr. Bryan had been a portfolio manager at Lexington Management where he was responsible for the management of the Lexington Gold Fund since 1987. Mr. Bryan graduated from the University of Southampton in the United Kingdom with a Bachelor of Law and was admitted to the English bar.

Fund performance and considerations

The fund has yielded some relatively strong results outperforming its benchmark Philadelphia Gold and Silver Index over the five and ten year periods with compounded annualized absolute return on investment for the fund at 14.1 percent and 26.6 percent.  Investors should also note some shorter term challenges with respect to relative fund underperformance on a one year basis one year return 32.8 percent versus 37.8 percent for the respective Equity Precious Metals category median funds. The fund’s Management Expense Ratio (MER) is slightly above average at 1.46 percent of the funds total assets compared with the category average at 1.42 percent.  Similar to other profiles on US based funds including Van Eck International Investors Gold Fund (MUTF:INIVX) and Oppenheimer Gold and Special Minerals Fund (MUTF:OPGSX) it is necessary for investors to note the direct currency exposure to the American dollar.  The most recent information indicates that over 59 percent of the investments are in larger companies with market capitalizations of over $9 billion.  The remaining exposure is distributed between 5 percent smaller companies and 24 percent mid size, with a portfolio average weighted market capitalization around $ 11 billion.

Fund management style

According to Mr. Bryan several factors help guide him in making investment decisions, “There are three things. First, there is the asset, in this case the deposit. If you don’t have a decent ore deposit, then you start with some difficulties. The second is management — the various different qualities of the people that are working for you. I guess you can look at their previous track record, but it is at the end of the day somewhat subjective. And the third thing, and the most important, is the financial situation of the company and the extent to which the company is either leveraged or hedged. I’d rather have an unleveraged but unhedged company, than a heavily leveraged and heavily hedged company in my portfolio. And very often the two go hand in hand.”

The over arching strategy is to, “look at a number of company specifics in order to determine which gold stocks are relatively undervalued. Our focus is on capitalization per ounce of production and, more importantly, on capitalization per ounce of recoverable reserves. This determines how much gold actually backs every dollar invested in a gold company.  We appreciate that every mining company must replace the gold that it mines, and we place a heavy emphasis on the quality of management and their ability to create shareholder wealth.  We invest globally with an emphasis on gold producing companies.”

Recent disclosure and top holdings

Featuring a total of 47 positions within the fund as of the end of March, the top 10 positions are representative of 64 percent of the total assets under management.  Aside from some of the larger positions, Mr. Bryan highlights:

Detour Gold (TSX:DGC), “a development stage gold mining company with its namesake Detour Lake gold project in northern Ontario. In May the company announced the results of a feasibility study it commissioned on the project. The Detour Lake Mine is expected to produce over eleven million ounces of gold from its open pit over its sixteen year mine life. The cash costs per ounce of production are expected to average $440 during the mine’s life. With the mine operations commencing in 2013, Detour Lake would be among the largest gold mines in the world.”

Golden Queen Mining Co. Ltd. (TSX:GQM ), “a development stage mining company with a project just outside the town of Mojave in southern California. The operation envisions a bulk tonnage open pit mine producing both gold and silver. The permitting process was completed in May, and the company subsequently engaged in a private placement deal with mid-cap producer Gammon Gold in which Gammon acquired 5 million shares for a total payment of $8 million.”

Silver Lake Resources (ASX:SLR ), “a junior gold mining company with operations in western Australia. We expect the company to produce close to 100,000 ounces of gold in 2010 while it continues to explore for high grade deposits in the area surrounding its current operations. The company has the potential to produce 300,000 ounces of gold by 2014 from two projects. The high grade nature of the deposits would allow for a low cost production profile.”