EQUITY markets are in doldrums. Record inflation is eating away bank deposits. Are there are any investment avenues left? Gold, say experts, can be used as a potent tool to fight wealth erosion. ET caught up with Evy Hambro who manages Merrill Lynch's World Gold Fund and also several segregated natural resource mandates for other clients. Mr Hambro who has worked in London, Sydney and Toronto feels that gold prices have not peaked as yet and that gold equities would outperform gold price over the long run. Interestingly, his World Mining Fund focuses on a defensive value investment style while the World Gold Fund focuses on a cyclical value investment style. Mr Hambro is also the co-fund manager for Merrill Lynch's Natural Resources Hedge Fund. Excerpts:
Given the market scenario, investment in gold has gained significance. Do you think investors would gain more by investing in gold mining companies as against gold ETFs or direct investment in gold derivatives?
Gold equities should outperform gold price over the long run. This is because gold equities are able to leverage on the gold price and to grow production- if you buy a gold ETF or direct gold, you are not able to do this and only have exposure to moves in the spot gold price. Gold equities are similar to holding a call option on gold in the ground. However, investors should be aware that they are also taking some equity market risk when investing in gold equities (although market movements will not be the main driver of performance of the stocks over the longer term).
Globally what has been the trend in mining companies' stock performance? Say, for bigger market-cap stocks like Barrick and Goldcorp versus junior golds? How has it affected performance of your fund?
We tend to focus our investments in those companies that are able to grow their production and are able to control costs. We typically have a bias for mid cap companies as these are well placed to leverage any rise in the gold price, enabling us to generate maximum possible return for our investors. That said, in periods where the gold price is moving up strongly and the broader markets momentarily focuses on the sector, large-caps have tended to perform better (as investors seek out these names to get exposure to the gold price). We tend to avoid small cap explorations stocks as the risk profile is not appealing.
The trend in gold and dollar is not independant of each other. Do you feel that the woes for the dollar are over; how would it impact commodity prices, especially that of gold?
A: We do expect volatility in the dollar going forward and this, coupled with inflation, may prove supportive of commodity prices (and particularly gold)
On a different note, what geo political factors are likely to affect crude oil prices in the coming months?
Although new factors could come in to play at any given time, tensions over Iranian nuclear ambitions, unrest in Nigeria and resource nationalisation are all likely to continue to influence oil prices going forward.
Given the market scenario, investment in gold has gained significance. Do you think investors would gain more by investing in gold mining companies as against gold ETFs or direct investment in gold derivatives?
Gold equities should outperform gold price over the long run. This is because gold equities are able to leverage on the gold price and to grow production- if you buy a gold ETF or direct gold, you are not able to do this and only have exposure to moves in the spot gold price. Gold equities are similar to holding a call option on gold in the ground. However, investors should be aware that they are also taking some equity market risk when investing in gold equities (although market movements will not be the main driver of performance of the stocks over the longer term).
Globally what has been the trend in mining companies' stock performance? Say, for bigger market-cap stocks like Barrick and Goldcorp versus junior golds? How has it affected performance of your fund?
We tend to focus our investments in those companies that are able to grow their production and are able to control costs. We typically have a bias for mid cap companies as these are well placed to leverage any rise in the gold price, enabling us to generate maximum possible return for our investors. That said, in periods where the gold price is moving up strongly and the broader markets momentarily focuses on the sector, large-caps have tended to perform better (as investors seek out these names to get exposure to the gold price). We tend to avoid small cap explorations stocks as the risk profile is not appealing.
The trend in gold and dollar is not independant of each other. Do you feel that the woes for the dollar are over; how would it impact commodity prices, especially that of gold?
A: We do expect volatility in the dollar going forward and this, coupled with inflation, may prove supportive of commodity prices (and particularly gold)
On a different note, what geo political factors are likely to affect crude oil prices in the coming months?
Although new factors could come in to play at any given time, tensions over Iranian nuclear ambitions, unrest in Nigeria and resource nationalisation are all likely to continue to influence oil prices going forward.
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