Fund Profile

Golden Prospect Precious Metals 26 September 2024

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Golden Prospect Precious Metals. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
With gold at all-time highs, GPM’s portfolio of gold miners looks cheap…
Overview

Golden Prospect Precious Metals (GPM) offers exposure primarily to gold mining companies. Managers Rob Crayfourd and Keith Watson take a highly active approach to the sector, concentrating on the smaller end where the potential returns are higher, and investing in companies listed around the world, which chiefly means Australia and Canada. They can invest in the miners of silver or the platinum group metals (PGMs ) too, but c. 79% of the portfolio is currently in gold. Gold is currently well supported by a number of factors discussed below, including rising geopolitical risks, emerging market investors and institutions diversifying away from the dollar, and expected interest rate cuts.

Gold miners typically offer geared exposure to a strong gold price. However, until recently they had been out of favour in the light of high inflation which has weighed on operating margins, even though gold has repeatedly hit new highs. Over the past six months though, the miners have rallied, leading GPM to post strong returns (see Performance section). Rob and Keith argue that this is likely to be only the beginning: they expect miners to increasingly report improved profit margins as inflation subsides and gold remains strong, while falling interest rates should lead to lower funding costs for the companies. Even after good short-term returns, miners remain at some of the cheapest levels they have ever been versus the gold price.

The managers have taken some profits in their winners and rotated into value names and some higher-risk opportunities (see Portfolio section). They have allowed their Gearing to drift down slightly although it is still in double digits. The Discount remains wide at 19.6% at the time of writing.

Analyst's View

We think gold can have an important role to play in a portfolio as a hedge against geopolitical risks. These are currently high and show no signs of abating: the ongoing war in Ukraine and tensions between the US and China have created a tense atmosphere in which having a tail risk hedge seems wise. We also think there is a multi-year de-dollarisation process underway which is likely to lead to gold being more important for many sovereigns, central banks, and institutional investors. It may not be that the dollar’s days as the world’s reserve currency are numbered, but at the least it is clear that central banks are deemphasising their dollar assets, while China in particular, the US’ largest creditor, is keen to lessen its exposure and increase its financial independence. In the short term, the signs also look good: US interest rate cuts should be good for gold as they reduce the opportunity cost of holding the non-yielding asset (which typically takes the place of cash or cash-like investments).

Investors could buy gold itself. However, gold is at all-time highs, so we think there has to be a risk that investors have positioned themselves for falling rates and therefore in the short term the market might pull back when the cuts finally come. Miners, on the other hand, remain exceptionally cheap versus their own history and their typical trading range versus gold. They therefore offer a form of insurance that looks cheap just as it is likely to be needed. As a measure of Rob and Keith’s own conviction in gold miners, we note they are substantially overweight the sector in their diversified commodity fund, CQS Natural Resources Growth & Income (CYN).

Bull

  • The divergence between the price of bullion and mining shares offers opportunity
  • The gold mining sector is cheap
  • Strong structural outlook for gold market, even at all-time highs

Bear

  • Portfolio is concentrated and so has single stock risk
  • The sector is volatile, and gearing further magnifies that to the downside as well as the upside
  • The small size of the trust means the charges are relatively high
Continue to Portfolio

Fund History

30 Oct 2024 Trusts in Focus: Golden Prospect Precious Metals
We provide a brief overview of GPM, including its investment objective, performance and portfolio allocations...
09 Oct 2024 Going, going, gold!
We ask if gold can continue to rise from all-time highs…
27 Sep 2024 Fed Cuts Push Gold Higher
Robert Crayfourd and Keith Watson, co-managers of the Golden Prospect Precious Metals fund, which has recorded an over 30% share price increase Year-to-Date, provide their insights...
26 Sep 2024 Fund Analysis
With gold at all-time highs, GPM’s portfolio of gold miners looks cheap…
30 Aug 2024 Gold at all time highs, the miners yet to follow
Robert Crayfourd and Keith Watson, co-managers of the Golden Prospect Precious Metals fund provide their insights...
24 Aug 2024 Go, go, gold!
The yellow metal has room to run despite its spectacular performance this year…
30 Dec 2021 Great expectations
As the last of the mince pies wilts in the fridge, topped with a generous helping of stilton, the Kepler Trust Intelligence team stick a finger in the air and point toward their top picks for the year ahead…
24 Mar 2021 Gold is money, everything else is on Reddit
Initial winners in the COVID-19 crisis, gold bullion and gold miners pulled back over H2 2020. Is now an opportune moment to build exposure?
10 Feb 2021 Eye of the Pfizer
Mining shares have rallied in recent months. With further potential, what impact could this have on the relative returns of active UK Small cap strategies...
28 Jan 2021 Fund Analysis
GPM invests in precious metals miners, focussing on junior miners...
06 Jan 2021 This time next year Rodney...
We review the performance of the team’s ‘top picks’ for 2020 – including some proper plonkers – and place our bets for the year ahead…
30 Oct 2019 All that glitters? The case for and against gold
Two of our analysts go head-to-head, debating whether gold is the ultimate safe haven asset...
View all

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