The Conversation (0)
With just over $200 million of assets under management, the size of this fund is relatively nimble, providing greater flexibility for exposure to smaller exploratory positions which can enhance the upside potential in addition to the risk volatility.
US-based OCM Gold Investor Fund (MUTF:OCMGX) has seen considerable change in the precious metals landscape since its inception dating back to February 5, 1988. That year the average price of gold was $437.00 per troy ounce, a slight decline from the $447.00 average from the previous year. The average price of gold did not rise above that range until 2005, challenging the intestinal fortitude for even some of the staunchest of “gold bugs.” Over the course of that time, Greg Orrell has been the principal portfolio manager and president of Orrell Capital Management Inc., since 1984. The long-tenured portfolio manager has operated in a challenging environment on the same consistent mandate for over 2 decades. Mr. Orrell received his BS in economics and business administration from Saint Mary’s College of California and last year he was recognized by the Business Insider as number six on an exclusive list of the 20 Best Mutual Fund Managers Of 2010.
Over the one, five and ten year categories the fund has generated compound annualized average returns of 37.1 percent, 15.1 percent and 26.1 percent respectively. These returns all beat the benchmark for the respective time frames, with category values of 36.9 percent, 12.2 percent and 23.4 percent.
Investment considerations
With just over $200 million of assets under management, the size of this fund is relatively nimble, providing greater flexibility for exposure to smaller exploratory positions which can enhance the upside potential in addition to the risk volatility. This is also demonstrated by its 3-year Standard Deviation of 45.51, which is slightly higher than the category average of 44.53. As with a few of the previous fund commentaries it is necessary for investors to note the direct currency exposure to the American dollar. This fund features a competitive Management Expense Ratio totaling 1.34 percent of assets compared with the Equity Precious Metals category average of 1.42 percent; however, because different regulations apply to US funds, the composition of what is included in the MER is slightly different. The fund features a compelling ratio of more than 2 up-years vs down-years and a considerably low annual stock turnover rate of 12 percent relative to the average turnover of 104 percent. Extensive trading in order to generate returns is considered to be costly and over the long term can reduce investment results.
Portfolio management outlook
In his most recent annual report Mr. Orrell shares his continued bullish thesis on gold appreciation, “We remain convinced the re-monetization of gold is still in the early stages as central banks and investors seek refuge from depreciating paper currencies. Furthermore, we expect gold price volatility to continue as gold acts as barometer of global liquidity both up and down. Overall, we are looking for significantly higher U.S. dollar gold prices from current record levels. Regarding gold shares, we believe gold equities will be revalued once the market realizes gold prices will sustain higher levels. With the total market capitalization of the entire global gold mining industry rivaling that of Apple, we believe there is room for gold share prices to move substantially higher as investors appreciate the earnings leverage inherent in gold mining companies.”
Style
The fund manager provided some insight into the proprietary active tiered approach, searching for gold companies that are growing production and making discoveries in order to be able to replace reserves. The method employs the firms’, “database of most companies that are in the industry and we have a value screen of where their ounces of reserves are trading and what their production ounces are trading at on a per market cap basis. From a producing standpoint, we’ll look at the life and the quality of the reserves and we match those up with where they are trading at on a per market cap ounce of reserves. If it’s not in production, then we look at what they are trading at on a per market cap of reserves for resources and what the expansion potential is. We try to estimate if the cost needed to put that mine into production meets our value screen and then we’ll make a decision to pursue from there.” The construction of the portfolio is based on a tiered approach of not trying to be overweighted in any one sector of the industry but from time to time, depending on where they think the values are they will underweight or overweight a particular segment. From a valuation perspective the bias is “predominately unhedged producers in our portfolio because we’re still looking to get as much upside exposure to gold prices as possible. We shy away from having the large hedged producers in the portfolio so they tend to be a very small percentage.”
Top holdings
The fund is relatively focused with the top 10 positions attributing for 60.6 percent of total assets and including:
Goldcorp Inc. (TSX:G), Randgold Resources, Ltd. (NASDAQ:GOLD), IAMGold Corporation (TSX: IMG), Kinross (TSX:K), AngloGold Ashanti Limited (NYSE:AU), Agnico-Eagle Mines (TSX:AEM), Silver Wheaton Corporation (TSX:SLW), Centerra Gold Inc. (TSX:CG), Eldorado Gold Corp (NYSE:EGO), SPDR Gold Shares .
