Golden Prospect Precious Metals (GPM) aims to generate capital appreciation through investment in a select portfolio of securities in the precious metals, diamond and uranium sectors. Managed by Rob Crayfourd and Keith Watson of New City Investment Managers, GPM tilts distinctively towards the junior mining end of the market cap spectrum. The managers seek to make best use of the investment trust structure and look for attractively valued opportunities below the liquidity requirements of the mass-market instruments typically used to access the sector.
As we discuss under Portfolio, the investment approach blends a combination of style factors, but places an emphasis on identifying projects trading at a discount to their peers. The managers are keen to ensure constituent companies display high quality management from experienced figures, and that they can be confident that holdings will be sustainable and profitable even if the spot price of the underlying commodity were to fall significantly.
Recent returns have been very strong, as we discuss under Performance. As we detail in this section, over the longer-term relative returns have tended to be positively correlated with bullish market sentiment for gold miners and with outperformance of junior miners over majors, as might be reasonably expected given the investment strategy.
GPM currently trades on a Discount of c. 9.9% (as at 22/01/2021) but this has proven to be highly volatile. However, a rising gold price could potentially prove supportive of further discount narrowing as well as NAV returns.
Investors evaluating GPM will obviously have to assess their views of the precious metals markets. We would note that we have highlighted GPM as one of our trusts for 2021. Investors bullish on precious metals and/or miners could consider looking further into GPM, which has historically outperformed in bullish market conditions for the sector. We note the managers’ comments on their ability to access companies beneath the liquidity profile of many major allocators to the sector which, as their share price (and market capitalisation) adjusts to reflect operational developments, often have the potential to gain in value suddenly. Within the sector, it is certainly notable that supply discipline has held across the market cap spectrum, with major players free cash flow positive and also likely to run into supply shortages in the future. From GPM’s perspective, we think this could potentially make many junior miners an attractive target for M&A activity.
However, this clearly carries a significant degree of exogenous market risk and, at c. £47m market cap, clearly the trust has a relatively low liquidity profile for larger scale investors. Shareholders and potential shareholders should, we would caution, be prepared for sharp short-term volatility in both NAV and share price, fuelled by a mixture of fluctuations in macroeconomic sentiment, tactical shifts in trading books and the illiquidity of many of the underlying stocks.
|Highly active approach
||Can prove highly volatile
|Investment trust structure allows access to illiquid value opportunities
||Gearing can amplify downside as well as magnify upside
|Tends to outperform in rising precious metal markets
||Discount is likely to amplify market fluctuations in sentiment around the asset class at this time