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Get golden protection with Smith & Williamson Global Gold & Resources

Smith & Williamson Global Gold & Resources offers inflation protection and diversification
July 20, 2017

Inflation may have fallen by 0.3 per cent to 2.6 per cent in June, but it is still over five times higher than the 0.5 per cent it was at this time last year. This rapid rise is bad news for savings and investments, as it erodes the spending power of future interest and dividend payments and eats away at the worth of your original capital. But one way to protect your portfolio from this is to add a fund with exposure to gold, which has long been used to hedge against inflation. 

IC TIP: Buy at 57.30pp
Tip style
Growth
Risk rating
High
Timescale
Long Term
Bull points

Inflation hedging

Decent relative performance

Experienced manager

Reasonable ongoing charge

 

Bear points

High volatility

"Gold is very cyclical: there are periods of time where it outperforms when everything else is underperforming," says Darius McDermott, managing director of Chelsea Financial Services. "At this stage in the cycle where many things look fully valued, I don't think gold is fully valued and, with lots of geopolitical uncertainty, I think it's sensible to keep a little bit of your portfolio in gold. Smith & Williamson Global Gold & Resources (GB00B3RJHY30) is an excellent fund if you're bullish about gold."

This is one of the better performing funds focused on this area – over three and five years it has outperformed its benchmark, S&P/TSK Global Gold Index. 

The fund aims for capital growth over the long term and mainly invests in the shares of gold mining companies, as well as those of other resources companies. Metals and mining companies make up 88.2 per cent of the portfolio, with chemicals accounting for 1.3 per cent and energy equipment and services 0.6 per cent.

>Gold has long been used to hedge against inflation

The fund is run by AGF Investments, which is based in Canada, and manager Ani Markova has been at the helm since its launch in 2011. Because the gold price is volatile Ms Markova focuses on finding companies with strong balance sheets and the ability to execute existing projects.

She looks for slightly different characteristics depending on the size of the company. With larger companies, she prefers management teams that are willing to improve the business by stripping out unnecessary costs. And as smaller companies are often more reliant on just one or two mines, she focuses more on the quality of their assets.

"The team looks to invest across the market capitalisation spectrum and is able to move relatively quickly due to the fund's small size," say analysts at Bestinvest.co.uk. "The management team is an experienced one and sees its Canadian base as an advantage, since more than half of global resources stocks are listed in that country, facilitating management meetings. The fund has a Canadian bias, investing at least 51 per cent in local companies." Seventy-three per cent of its assets are listed in Canada, and nearly 11 per cent in the US.

 

Smith & Williamson Global Gold & Resources also has a reasonable ongoing charge of 0.72 per cent.

Gold is a notoriously volatile asset, so if its price falls this fund is likely to be negatively affected, even though it invests in the shares of gold mining companies rather than the metal itself. However, the fund has outperformed over the long term, the period over which you should hold volatile assets such as gold mining shares. And given the background of rising inflation and continued geopolitical uncertainty, gold could appreciate and have a positive impact on the fund.

So if you're looking to hedge against inflation, willing to accept the higher risk of investing in gold and have a long enough investment horizon to ride out the volatility of mining shares, Smith & Williamson Global Gold & Resources could be a good way to diversify and achieve growth. Buy. EA.

 

Smith & Williamson Global Gold and Resources (GB00B3RJHY30)   
Price57.30p3-yr mean return11.92%
IA SectorSpecialist3-yr Sharpe ratio0.30
Fund TypeOeic3-yr standard deviation36.45%
Fund size£43.8mYield0%
No of Holdings90*Ongoing Charge0.72%
Set up date08/06/2011More detailswww.smithandwilliamson.com
Manager start date08/06/2011*  

Source: Morningstar as at 18/07/17, *Smith & Williamson Investment Management as at  31/05/1

 

Performance

 1 year total return (%)3 year  cumulative total return (%)5 year cumulative total return (%)
Smith & Williamson Global Gold & Resources-23.112.5-15.0
S&P/TSX Global Gold TR USD index-24.89.2-30.4

Source: Morningstar as at 18/07/17

 

Top ten holdings as at 31/05/17 (%)

Agnico-Eagle Mines 4.6
Central Fund of Canada 'A' 4.0
Detour Gold 3.5
OceanaGold 3.4
Tahoe Resources 3.3
Silver Wheaton 3.0
Franco-Nevada 2.9
Roxgold 2.4
Randgold 2.3
Endeavour Mining 2.2

Source: Smith & Williamson Investment Management

 

Sector breakdown as at 31/05/17 (%)

Metals and mining88.2
Unassigned4.9
Chemicals1.3
Energy equipment and services0.6

Source: Smith & Williamson Investment Management