The Conversation (0)
Traditionally, money managers occupied in more generalized investment mandates often ignore precious metals and dismiss gold. Finding a gold fund that invests in gold is relatively easy, but finding a prominent hedge fund that is heavily predisposed to investing in gold is indeed a more rarified jewel.
Filling a strong demand for gold, a multitude of investment vehicles have been offered including many versions of open ended trust funds which have, over the years, developed into an entire category within the broader fund universe. Over the past few months, Gold Investing News has highlighted some of the most distinguished funds managed in Canada, the United States and Europe.
These products are all designed and marketed towards investors that already know what they are looking for. Although some of these funds may have specific niche biases to provide specialized characteristics for the investment marketplace, most are primarily focused on exposing investors to the appreciating value of precious metals and often explicitly gold.
Traditionally, money managers occupied in more generalized investment mandates often ignore precious metals as an investable asset class and dismiss gold. The case is made that gold effectively produces zero interest yield, and is, by definition, a counter party risk against the types of assets that Wall Street promotes. Finding a precious metals or gold fund that invests in gold is realtively easy, but finding a prominent hedge fund that is heavily predisposed to investing in gold is indeed a more rarified jewel.
The “Bear Market Billionaire”
Paulson & Co founder John Paulson is the single most successful hedge fund investor to capitalize from the 2007 sub prime mortgage crisis and following recession, quickly rising to the ranks of highly credible investment managers in just a few years.
Mr. Paulson first became a billionaire, with Paulson & Co. earning $3.5 billion in 2007 by shorting sub prime securities. In 2010, he eclipsed this achievement by personally earning $5 billion; about $1 billion was in compensation, and about $4 billion was from investing his own money into his own company. Last year’s results were attributed to investments in Citigroup, short positions in troubled European banks, and significant holdings in gold.
Mr. Paulson has been coined the “Bear Market Billionaire” and his outlook has not materially changed based on the current global economic context. He has publicly predicted double-digit U.S. inflation in 2012 and set a target price for gold between $2,400 and $4,000 with over a third of Paulson & Co.’s $36 billion of assets invested in gold positions.
Strategy
Paulson & Co. employs fundamental analysis utilizing merger arbitrage, long/short and event-driven strategies, making use of the S&P500 for a benchmark.
Top gold positions
SPDR Gold Shares (NYSE:GLD) is an exchange traded fund (ETF) with the objective providing investors exposure to the performance of the price of gold bullion. The ETF trust currently has market capitalization of $60.22 billion. As of the end of March, the Paulson & Co. held 31,500,000 shares, with a market value of $4.41 billion and a portfolio weighting of 13.43 percent. Over the last year the share price has appreciated 23.67 percent.
One of the top gold producers, AngloGold Ashanti Limited (NYSE:AU) has 20 operations on four continents and several exploration programs in both the established and new gold producing regions of the world. Last year, AngloGold Ashanti employed 62,046 people, including contractors, and produced 4.52 million troy ounces of gold generating $5.3 billion in gold income and currently possessing a market capitalization of $15.72 billion. As of the end of March, the Paulson & Co. held 41,046,974 shares, with a market value of $1.97 billion and a portfolio weight of 6 percent. Over the last year the share price has declined 3.5 percent.
Doubling down: increased exposure
Between the end of last year and the end of March, Paulson & Co. increased its share holdings of Barrick Gold Corp. (TSX: ABX) by 125 percent, effectively taking its position from 400,000 shares to 900,000 shares, with a portfolio weight of 0.14 percent. Barrick has long been a top producing gold mining company, with a portfolio of 25 operating mines, advanced exploration and development projects located across five continents, and large land positions on the most prolific and prospective mineral trends. As of the end of last year the company also reported the largest reserves in the industry, with about 140 million ounces of proven and probable gold reserves, 6.5 billion pounds of copper reserves and 1.07 billion ounces of silver contained within gold reserves. It currently has a market capitalization of $44.37 billion and over the last year the share price has contracted 4.0 percent.