TD Precious Metals Fund

By Dave Brown – Exclusive to Gold Investing News

TD Precious Metals Fund’s portfolio management team considers several important factors when determining the best route toward achieving long-term capital growth. One of the most important of these factors is the level of risk adherent in producing the return.

Portfolio management team

Ari Levy has been recognized as a well reputed portfolio manager, winning a number of accolades including being ranked one of the top 50 Canadian equity portfolio managers in Brendan Wood International’s 2009 survey.  Brendan Wood International is a research company within the financial services sector that has been conducting annual “TopGun” lists of portfolio managers for 40 years. Earlier this month, Mr. Levy was recognized as a TopGun investment mind for last year by Brendan Wood’s selection panel consisting of the most selective and highly acclaimed analysts in the field.  In addition to the TD Precious Metals Fund, his portfolio management skills set is utilized on a number of resource, energy and equity fund mandates. Mr. Levy is a graduate of the combined Law/MBA program (BCL, LL.B. and MBA) and has a BA (economics) all from McGill University. Mr. Levy is also a CFA charterholder and is presently enrolled in the Chartered Business Valuator (CBV) program.

Chad Gilfillan joined TD Asset Management in 2006 and is currently co-manager of the TD Precious Metals Fund. He is a professional engineer by training with operational expertise, having gained over four years of experience in the field on various international mining and energy-related projects. Mr. Gilfillan has a B.A. Sc, Geological Engineering, from the University of Waterloo (2002) and is a Level III candidate in the CFA program.

Considerations and style

In an exclusive interview with Gold Investing News both managers explained some characteristics of the portfolio and how it is differentiated within the precious metals fund universe.  Mr. Levy explained, “We have a large cap bias but we have a very healthy exposure to mid and small cap exploration and development names.  We have a focus on superior risk adjusted returns.”  The core names have large scale growth projects, experienced and competent management teams, low cost, long term growth profiles, financial flexibility and positive free cash flow.  In terms of more technical criteria, the commodity and political risk, depending on location and operations, are taken into consideration on the business valuation.

The fund continues to be diversified by precious metals gold, silver and platinum group metals as well as by geography and market capitalization.  The fund features a Management Expense Ratio (MER) of 2.2 percent of net assets, coming at a relatively attractive price point to the median as reported by Globe Investor. As a category benchmark, the median MER for the precious metal category is 2.3 percent.  According to the annual report, the total number of holdings within the fund at the end of last year was 145.

Fund performance

Last year, the fund generated a relatively impressive 44.8 percent compared with the 26.7 percent for the benchmark index, the S&P/TSX Global Gold Total Return Index. According to Globe Investor, as of the end of last month the fund has also generated relatively strong risk adjusted returns on a longer term with a five year compounded annualized growth rate of 15.9 percent compared with an index return of 15.3 percent and over a ten year time period the fund has managed a 10.4 percent compounded annualized growth rate compared with the index at 8.4 percent.

Performance attribution

For last year, a major driver of fund performance was the price of gold, which began the period at $1,097 per troy ounce and steadily climbed throughout the year, peaking at $1,424 on December 6th, and closing the year at $1,421 per troy ounce. The continuation of a low interest rate environment in the U.S. and Europe, a declining U.S. dollar and the launch of another round of quantitative easing by the U.S. Federal Reserve Board fueled the price of gold during the second half of the year, particularly during the final months.  Mr. Levy continues to remain positive on the outlook for gold and precious metals as ongoing longer-term concerns regarding the U.S. dollar and global quantitative easing as well as the influence of China and India could lead to further increases in investment demand for gold.

Within the most recent context of Japan and civil unrest in the Middle East and North Africa (MENA), Mr. Levy presented the observation that, “if you take a look at the role of gold overall it has always served several functions including the store of value function.  We have seen investors gravitate to gold as an asset class over the last couple of years.  They tend to gravitate to gold in uncertain times and as a store of value we think that has a positive impact on the price of gold.”

Recent developments from the latest disclosure

Throughout last year, the portfolio management team continued to increase concentration by eliminating positions considered too small to have a significant impact on performance.  In addition, exposure to some large cap names was reduced following consolidation activity in the sector. Positions in a number of companies were initiated or increased, including IAMGold Corporation (TSX:IMG) and Freeport-McMoran Copper & Gold (NYSE:FCX).

Mr. Gilfillan highlighted some of the investment theses for Goldcorp Inc. (TSX:G), Osisko Mining Corp. (TSE:OSK) and  IAMGold Corporation (TSX:IMG) discussing a number of the projects, operational advantages, strong mining teams and compelling reasons for inclusion in the portfolio.

Top holdings

As at the end of last month, the top holdings of the fund included:

Goldcorp Inc. (TSX:G), IAMGold Corporation (TSX:IMG), Barrick Gold Corp. (TSX: ABX), Kinross (TSX:K), Silver Wheaton Corporation (TSX:SLW), Agnico-Eagle Mines (TSX:AEM), Freeport-McMoran Copper & Gold (NYSE:FCX), Lake Shore Gold Corp (TSX:LSG), Romarco Minerals Inc (TSXV:R), Osisko Mining Corp. (TSE:OSK), Ivanhoe Mines (TSX:IVN), SEMAFO Inc. (TSX:SMF), Newcrest Mining Limited ( ASX:NCM) and Yamana Gold (TSX:YRI).