Tocqueville Gold Fund

Tocqueville Asset Management (and its founding principals) have been managing private wealth for more than 30 years, and investors of the Tocqueville Gold Fund (MUTF:TGLDX) have benefited from strong returns from the current portfolio manager who has been occupied with the fund’s stewardship since its inception in 1998. With a focus on value style of investing coupled with a contrarian spirit, the emphasis is weighted on absolute rather than relative performance for investors.

Performance

The fund has demonstrated relatively good short-term performance over a one year time frame, with a return of 56.0 percent compared with a 42.0 percent return for the median Equity Precious Metals category performance, as at the end of February.  The mid-term performance over three and five year period durations are also relatively strong, with the fund generating a compounded annualized return of 17.5 percent versus the median 7.9 percent for the category median performance over three years, and a subsequent five year return of 20.5 percent compared with 16.0 percent with the Equity Precious Metals category median performance.

Portfolio management

Senior Managing Director and Portfolio Manager John C. Hathaway was the Chief Investment Officer at Oak Hall Advisors for seven years prior to joining Tocqueville in 1997. In 1986, he founded and managed Hudson Capital Advisors and prior to Hudson Capital Advisors, Mr. Hathaway joined the investment advisory firm David J. Greene and Company in 1976, where he became a Partner. Mr. Hathaway began his career in 1970 as an Equity Analyst with Spencer Trask & Co. He has a BA from Harvard College, an MBA from the University of Virginia, and holds the CFA designation.

Investment considerations

The Tocqueville Gold Fund is less volatile than its peers with a three year Standard Deviation of 41.86, which compares favorably to the category average of 45.03. Featuring a lower management fee of 1.34 percent compared to the Equity Precious Metals average of 1.44 percent, the fund also has a favorable ratio of “up-years vs down years” greater than 2.  Investors will note that the annual stock turnover rate of 9.0 percent vs the average Equity Precious Metals category of 108.5 percent provide a compelling feature that the fund management does not trade extensively for its return.

Asset allocation and fund management style

A large majority of the fund’s portfolio is invested in gold related equities, and about 6 percent is invested in gold bullion according to the most recent financial disclosure. Mr. Hathaway has a smaller to middle capitalization bias, which makes the fund unique, and which has been a key driver of performance. The fund also includes not only companies involved in gold production, but also those involved in gold exploration and development, which in many ways serves to differentiate from other precious metals funds. The goal is to invest in a number of high-quality names that provide investors with exposure to all aspects of gold-related value appreciation with reasonable diversification.  According to Mr. Hathaway, “We seek to invest in companies at an early stage of development which can generate growth through exploration success or new mine construction. In this way, we have invested earlier than most of our peers and well before investment banks and brokerage firms commenced research coverage. This strategy is reflected in the fact that our average market cap is 60 percent of our peer group average. The success of our approach is manifest in having numerous acquisitions of our positions by large cap mining companies. Two notable examples of this in the past year were the acquisition of Red Back by Kinross (TSX:K) and the acquisition of Andean Resources by Goldcorp Inc. (TSX:G).”  The investment strategy remains consistent with practices since its inception of June 1998 with the research team traveling over 500,000 miles since 2003, to remote sites around the world to visit the mining and exploration activities of smaller companies.

Mr. Hathaway believes that mining stocks remain cheap relative to gold bullion underscored by the investment thesis that gold mining companies are capable of generating internal growth, returning capital to shareholders in the form of dividends, and participating in potentially accretive merger activity.  The direct gold bullion exposure provides the portfolio with relative stability in volatile markets. According to the annual report the fund’s overall performance last year was more correlated with the price of gold rather than changes in the equity market.  Mr. Hathaway commented on his bullish forecast for the future prospects of the yellow metal, “Gold has provided favorable non-correlation attributes to the overall equity market and may potentially act as a portfolio stabilizer in volatile markets.  As the markets were roiled by overriding macro issues in the past few years, gold was sought by investors as a safe haven. Today, gold represents a very small portion, less than 2 percent, of the $100 trillion global capital market. As we see the market for gold increase, the price of gold should increase as well. With investor momentum, we believe the long-term upside potential is significant.”

Top holdings

Featuring a total of 80 positions within the fund as of its most recent disclosure, the top 10 positions, including holdings in physical gold, are representative of 49 percent of the total assets under management and include:

Goldcorp Inc. (TSX:G), Osisko Mining Corp. (TSE:OSK), Gold Resource Corporation (AMEX:GORO), Ivanhoe Mines (TSX:IVN), Silver Wheaton Corporation (TSX:SLW), Newmont Mining Corporation (TSX:NMC) (NYSE:NEM),  International Tower Hill Mines (TSXV:ITH) (AMEX:THM), Randgold Resources, Ltd. (NASDAQ:GOLD), Eldorado Gold Corp (NYSE:EGO).