Gold is negatively correlated to most assets classes but in the bull market in equities in 2019 a gold fund run out of Sydney and London smashed the lights out.
The investment philosophy behind the top-performing, large cap international equities fund for 2019 is simple – buy quality gold mining companies with sustainable profit margins that return a percentage of cash to shareholders.
David Baker, managing partner of Baker Steel Capital Managers, says there is one other proviso to this investment philosophy and that is to avoid speculative gold miners.
“I am 60 years old so I have been around long enough to have seen how much money can be lost and how many holes people dig for no reason at all,” he says.
“We want the big companies that give the cash returns to shareholders.”
The Baker Steel Gold Fund, which invests in a gold and precious metals strategy with $US400 million ($568 million) under management, is run out of London. It feeds into the Baker Steel Precious Metals Fund. David Baker does the research out of an office in Sydney.
In the year ended June 30, the fund returned 25.73 per cent, according to data compiled for Chanticleer by Lonsec. The next two best funds were the Zurich Investments Concentrated Global Growth Fund with a 23.43 per cent return and the Magellan Global Fund with 20.21 per cent return.
The top 10 holdings in the Baker Steel Gold Fund are Harmony Gold, Pan American Silver, St Barbara Mines, Newmont Mining, Centerra Gold, Barrick Gold, Agnico-Eagle Mines, Pretium Resources, Semafo Gold and Kirkland Lake Gold.
Other Australian-listed gold miners in the fund include Resolute Mining, Oceana Gold and Gold Road Resources. The fund does not own Newcrest Mining.
“I love Newcrest Mining but I think at this stage of the cycle I can find other shares that can do better,” Baker says.
The fund beat its benchmark, the FTSE Gold Mines Index (up 24.89 percent), in the year to June. Gold rose to its highest level in US dollar terms in almost six years in June.
Baker says the catalyst for gold’s rise has been the US Federal Reserve’s more dovish policy stance, the weaker outlook for the US dollar, the rising geopolitical tension in the Gulf and concerns about slowing global economic growth.
“We are killing the pig in the gold sector,” Baker says. “My main aim is to outperform my competitors. Gold mining equities are just starting to outperform gold, so the sector is certainly looking interesting.”
The Lonsec data only includes products of investment grade or higher. Rui Fernandes, co-head of manager research at Lonsec, says the financial 2019 performance numbers show fundamental growth products generally dominated while fundamental value remained in the doldrums.
The other top-performing funds were the Walter Scott Global Equity Fund, the MFS Concentrated Global Equity Trust, the VanEck Vectors Morningstar Wide Moat ETF, the AB Concentrated Global Growth Equities Portfolio, the AXA IM Sustainable Equity Fund and the Generation Wholesale Global Share Fund. The funds had returns between 18 per cent and 19 per cent.
The worst-performing fund in the list of large cap funds compiled by Lonsec was the PM Capital Global Opportunities Fund, a listed investment company trading at a 15 per cent discount to its net tangible assets. It went backwards by 15.23 per cent.
PM Capital argues this figure does not reflect its performance and it should not be included in a table comparing listed investment companies with unlisted funds. But it chose to be rated by Lonsec and is, therefore, included in its universe of funds.
The PM Capital Global Opportunities Fund saw its NTA fall by 2 per cent in the year to June copmared to an 11 per cent rise in the MSCI AC World Net Index. Shareholders in listed investment companies have had a bad year with several falling in value by more than 20 per cent in the year to June.
For those interested in medium to long term returns, the top-performing fund was the Hyperion Global Growth Companies Fund which ranked first over three years with a return of 23.7 per cent per annum, and first over five years with a return of 22.5 per cent per annum over five years.
It is notable that the Baker Steel Gold Fund ranked fourth over five years with a return of 17.4 per cent per annum.
This article was originally published on Australian Financial Review.