The Gold and Precious Metals Fund had a total negative return of 26.50% in the second quarter of 2022, outperforming its benchmark, the FTSE Gold Mines Index, which had a negative return of 28.83%. See complete fund performance here.
Performance data quoted represents past performance. 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.
- The biggest contributor to fund performance was its weighting in cash, overweighting in K92 Mining and zero weighting in Evolution Mining. The biggest contributor to fund performance was its average cash weighting of 6.28% for the quarter, buffeting the fund’s return by 163 bp.
- The second-best contributor to the fund’s performance was overweighting of K92 Mining at 13.20%, which only declined 17.68% for the quarter, yielding 134 bp of relative performance to the benchmark for the fund. K92 Mining is currently not a member of the benchmark. The company is poised for further production growth, self-funded from current production, and there is significant resource growth potential.
- The third largest contributor to the fund performance was its zero weighting of Evolution Mining, which fell 50.40% after lower production guidance for 2022 and the subsequent two years. This yielded the fund 177 bp. Evolution Mining was around the eighth largest member of the benchmark before it fell in price.
- The largest detractor to fund performance was its underweighting of Newmont, underweighting of Agnico Eagle Mines and overweighting of DDH1. The largest detractor from fund performance was its underweighting of Newmont, which averaged 1.29% of the fund and fell by 28%, thus impacting the fund by 116 bp. Newmont is the largest member of the benchmark. Including our long-term equity anticipation securities (LEAP) position, an additional 72 bp were lost.
- The second largest detractor from fund performance was its underweighting of Agnico Eargle Mines, at 0.86% and which declined 20.63% for the quarter, detracting 45 bp of relative performance to the benchmark for the fund. Agnico Eagle is the fourth largest member of the benchmark.
- The third largest detractor from fund performance was the overweighting of DDH1, which fell 43.92%. With our average weighting at 2.27%, the position detracted 39 bp from the fund relative to its benchmark. DDH1 recently announced a 10% stock buyback as cash from operations exceeded their needs after posting a 27% return on invested capital (ROIC).
On its face, firmer inflation is bullish for gold prices, but it is now being quickly counteracted by more aggressive pricing for a policy response from the Federal Reserve and other central banks. As such, there needs to be more signs that economic growth is cracking under the strain of higher inflation and tighter financial conditions, which would, in turn, support sustained safe-haven inflows into the precious metals sector. Renowned billionaire hedge fund manager Stanley Druckenmiller says that in an inflationary bull market, he wants to own bitcoin more than gold “for sure.” However, he explained that in a bear market, he would prefer to have gold.
According to research firm Stifel’s market commentary on the global metals and mining industry, miners are poised to deliver outsized capital returns to shareholders through dividends and share buybacks over the coming years. While the phase of deleveraging following significant investment in growth over a decade ago is nearing completion, investing in new growth has been a challenge and continues to face obstacles. As a result, dividends and buybacks have become an attractive destination for excess cash sitting idle on the balance sheet. Stifel believe, therefore, that, while the larger miners are already paying an attractive average dividend yield of 5%, room for higher returns exist in the coming years as buoyant commodity prices and a lack of sizable growth opportunities create an ideal scenario for heightened shareholder returns.
The World Platinum Investment Council (WPIC) lowered its supply forecast for 2022 to 7.78 million ounces as it expects lower output from South Africa and Russia. Additionally, the organization estimated supply at 8.18 million ounces earlier this year and Major South African producers are all lowering guidance. The WPIC sees sanctions impacting Russian output and has reduced its platinum surplus outlook to 627,000 ounces from 652,000 ounces.
The wedding boom has been productive for diamond sales. They rose more than 60% in 2021, according to Bain & Co., a consulting group, while production increased by just 5%. And that means diamonds have been getting more expensive. Supply from the mines declined every year from 2017 to 2020, with the total sliding from 152 million carats to 111 million. Bain & Co’s research says production probably will grow by just 1% to 2% annually over the next five years.
The FTSE Gold Mines 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.
There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.
The term long-term equity anticipation securities (LEAPS) refers to publicly traded options contracts with expiration dates that are longer than one year, and typically up to three years from issue. 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). Return on invested capital (ROIC) is the amount of money a company makes that is above the average cost it pays for its debt and equity capital.
Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Gold and Precious Metals Fund as a percentage of net assets as of 6/30/2022: K92 Mining Inc. 13.48%, Evolution Mining Ltd. 0.00%, Newmont Corp. 1.33%, Agnico Eagle Mines Ltd. 1.43%, DDH1 Ltd. 1.97%.
Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5% to 10% of your portfolio in these sectors.