Second Quarter 2020

The World Precious Minerals Fund had a total return of 78.57 percent in the second quarter of 2020, outperforming its benchmark, the NYSE Arca Gold Miners Index, which returned 55.87 percent. See complete fund performance here.

As we noted in the prior quarter, Newmont, the largest gold company in the world, was one of the few gold mining companies that achieved a positive return in the first quarter. The Federal Reserve and Congress’ response to the Covid-19 pandemic have placed a new spotlight on gold mining investments. Investors who were just buying the most liquid senior gold company names recognized that macro conditions for a longer-term gold cycle may be setting up; thus, they have started to rotate down capitalization as Newmont was only able to gain 36.94 percent in the second quarter while the NYSE Arca Gold Miners Index gained 55.87 percent. Newmont is the biggest weighting in this index too.

Past performance does not guarantee future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost.

Strengths

  • The largest contributor to fund performance was Dolly Varden Silver Corp., which gained 196.10 percent during the second quarter of 2020. With an average fund weighting of 3.73 percent, the company contributed 316 basis points. Silver prices rallied more than 30 percent during the second quarter, significantly improving the investment prospects of silver explorers and miners. Dolly Varden Silver is not a member of the benchmark NYSE Arca Gold Miners Index.
  • The second biggest contributor to fund performance was our zero-weighting of Newmont Corporation. With an average weighting of 14.37 percent in the benchmark, it gained 36.96 percent during the quarter, but the overall fund returned 80.02 percent. Thus, the fund avoided 255 basis points of underperformance by underweighting Newcrest Mining, which is the largest member of the NYSE Arca Gold Miners Index.
  • The fund’s third best contributor was Cardinal Resources, which was the subject of two takeover offers, the first from Nord Gold, while interloper Shandong Gold later topped that bid by 30 percent. Cardinal Resources gained 111.22 percent for the quarter, contributing 182 basis points to the fund. Cardinal Resources is not a member of the NYSE Arca Gold Miners Index.

Weaknesses

  • An average cash balance of 3.07 percent was the biggest drag on performance relative to a cashless benchmark. Attribution analysis show a 334 basis point impact to performance. Investment exposure to leveraged gold stock ETFs offset close to half the cash drag.
  • The second largest detractor from fund performance was the weighting in TriStar Gold, which only appreciated 41.39 percent. With our average weighting of 10.42 percent of the fund and the total return of the fund hitting 80 percent, TriStar underperformed and represents 231 basis points of underperformance relative to the fund’s return. TriStar Gold is not a member of the NYSE Arca Gold Miners Index.
  • The third largest detractor from fund performance was zero-exposure to the Kinross Gold Corporation, which gained 81.26 percent for the quarter. Our zero-weighting detracted from our relative performance to the NYSE Arca Gold Miners Index by 86 basis points.

Outlook

Mergers and deals are starting to gain traction after several years of senior miners being on a “do not proceed with a purchase transaction” mantra. As S&P Global Market Intelligence recently noted in a report, during the past three years, there were no major new gold discoveries, and in the past decade, there were only 25. A major miner like Newmont produces some 6.3 million ounces of gold per year, while a typical gold discovery that starts to catch the major’s attention needs to be, at a minimum, 2 million ounces. With a lack of new discoveries, acquisitions become the most viable path to replace depletion.

Several asset sales by failed management teams went to the Chinese. Zijin Mining topped an offer by Silvercorp Metals to buy distressed Guyana Goldfields for cash, which could not deliver predictable returns from quarter to quarter. Shandong Gold also is paying cash for TMAC Resources in Hope Bay, Canada. The location is challenged as shipping supplies can only reach the site seasonally when the weather allows. SSR Mining offered shares to purchase Alacer Gold, not only for the asset but to pick up its CEO Ron Antal to be the new CEO of SSR Mining. The transaction was viewed as a win as both share prices rallied. AngloGold Ashanti sold its last asset based in South Africa to Harmony Gold, thereby fully divesting them from South African country risk. The fund held both names as the market liked the transaction. Most significant to the World Precious Mineral Fund was the all-cash takeover offer by Shandong Gold to purchase Cardinal Resources’ shovel-ready asset at a 30 percent premium to Nord Gold’s offer.

We expect the trend in mergers and acquisitions to continue as companies position themselves for the future. Silver also gained some interest, but there are few pure-play silver companies to buy. Having exposure to this metal, however, could potentially be explosive. In the last cycle, silver ran to $50 per ounce, and we are trading in the mid-teens currently. Palladium was weak in the recent quarter with car sales being impacted, but mine production was also shut in with COVID-19 work stoppages. Platinum has continued to struggle for recognition, but fuel cells, which use platinum as a catalyst, are starting to gain much more attention as hydrogen can be used as your fuel—a very environmentally friendly solution to gas- or diesel-powered engines.

 

The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The index benchmark value was 500.0 at the close of trading on December 20, 2002. The NYSE Arca Junior Gold Index is a modified equal dollar weighted index of small-cap companies involved in gold mining. The FTSE Gold Miners Index encompasses all gold mining companies that have a sustainable and attributable gold production of at least 300,000 ounces a year, and that derive 75% or more of their revenue from mined gold. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. It is not possible to invest in an index.

A basis point, or bp, is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001). A warrant is a derivative that gives the right, but not the obligation, to buy or sell a security—most commonly an equity—at a certain price before expiration.

Fund portfolios are actively managed, and holdings may change daily and should not be considered a recommendation to buy or sell any security. Holdings are reported as of the most recent quarter-end. Holdings in the World Precious Minerals Fund as a percentage of net assets as of 6/30/2020: Newmont Corp. 0.54%, Dolly Varden Silver Corp. 3.03%, Cardinal Resources Ltd. 5.39%, Nord Gold SE 0.00%, Shandong Gold Group 0.00%, TriStar Gold Inc. 10.68%, Zijin Mining Group Co. Ltd. 0.00%, Silvercorp Metals Inc. 0.00%, Guyana Goldfields Inc. 0.00%, Shandong Gold Mining Co. Ld. 0.00%, TMAC Resources Inc. 0.03%, SSR Mining Inc. 0.00%, Alcer Gold Corp. 0.00%, AngloGold Ashanti Ltd. 0.00%, Harmony Gold Mining Co. Ltd. 0.00%.

Net Asset Value
as of 09/18/2020

Global Resources Fund PSPFX $4.99 -0.01 Gold and Precious Metals Fund USERX $14.39 -0.17 World Precious Minerals Fund UNWPX $5.58 0.02 China Region Fund USCOX $9.46 0.08 Emerging Europe Fund EUROX $5.66 -0.06 All American Equity Fund GBTFX $23.51 -0.26 Global Luxury Goods Fund USLUX $17.03 -0.19 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change