Gold funds shine again in February
Sprott fund up 17.5%: Shortfall in gold supply will keep rally going, analyst says
Jason Chow -- Financial Post
Gold funds topped the list for the second month in a row in February as the best performing mutual fund group in Canada, according to the results of a Financial Post survey.
Nine of the top 10 performing mutual funds for the month were oriented toward gold and precious metals. The top gainer for the month among all funds was the Sprott Gold Fund, up 17.5%.
Even the worst performer, Barclay's iGold units, managed to gain ground, advancing 5.6%. The Barclay's fund is heavily weighted toward large-cap gold shares such as Barrick Gold Corp. and Placer Dome Inc. As such, it missed out on the stellar advances in smaller cap stocks like Kinross Gold Corp. (up 42%) and TVX Gold Corp. (up 39%).
Historically, gold has been an unwieldy and volatile asset class, a commodity vulnerable to the rumours and whims of currency markets, central banks, and crazy "gold bugs" who are still convinced that prices will return to the highs of more than 20 years ago.
Because of the volatility, gold funds have been poor long-term performers, losing 10.4% in value over the past five years despite last year's boom.
But this time, the rally will continue, said Brian Christie, a gold analyst at Canaccord Capital in Toronto. "It's got some good legs," he said. "This time it's a longer-term fundamental story about supply and demand."
He cited flat production growth, declining reserves, and the lack of development projects as reasons to support a higher gold price.
February's glittering performance for gold funds continued the trend begun in January. While the average Canadian equity fund is flat for the year, the average precious metals fund is up 25%, according to statistics from Fundata. A full FP Mutual Funds report will be published on Monday in the National Post.
In just two months, Royal Bank's Royal Precious Metals fund is now up 40.9%, making it the top performing mutual fund in Canada. In the last 12 months, the fund is up 78.6%. In the same period, the average science and technology fund is down 32%.
While gold funds have glittered, most equity funds haven't during the past year's bear market and many fund watchers are wondering when investors will start having faith in equity funds again as recent sales have shown a preference to safer money market funds.
Looking forward to the final figures for February mutual fund sales to be released on Friday, analyst Frank Latshaw at UBS Warburg expects sales to shift away from banks to independent funds, reflecting investors' move away from money-market products into longer-term funds.
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