Hi Joel,
Just so others get to see the article you referenced...
interactive.wsj.com
June 28, 2001
Market Tests the Mettle
Of Gold-Fund Manager
By THEO FRANCIS
Staff Reporter of THE WALL STREET JOURNAL
Jean-Marie Eveillard is a patient man. As evidence, consider that he runs a
gold fund.
Founded in 1993, Mr. Eveillard's First Eagle
SoGen Gold Fund has languished for much of
the past eight years. An investor putting
$10,000 in the fund at inception would have a
little more than $7,000 today. With declines like that, plus investor
withdrawals, the fund's assets have dwindled to $10.9 million from a high of
$70.2 million. So it was little wonder that in 1998, Mr. Eveillard publicly
pondered closing the thing altogether.
He didn't, and during autumn of last year, finally, the fund began to glitter. It
has gained 28.35% since the beginning of the year and more than 37% since
bottoming out in November.
Still, Mr. Eveillard, 61 years old, remains wary.
"Do I think the recent upturn and then downturn in the price of the metal are
significant? I don't have the foggiest idea," Mr. Eveillard says. "The gold
market is a very opaque market."
To say the least. The portfolio Mr. Eveillard oversees is hardly the only
leaden gold fund. The fund-tracking firm Lipper Inc. ranks it in the top 5%
of funds for five-year returns, but that is in a decidedly lackluster field. In
fact, for 11 out of the past 17 years, Lipper's Gold Fund Index has lost
ground. Wednesday, gold futures fell $3.95 to $272.30 an ounce on the
Comex division of the New York Mercantile Exchange.
"Any long-term measure you look at, [gold funds] are absolutely the
dead-last rate of return," says analyst Don Cassidy of Lipper, which tracks
mutual-fund performance and produces the gold-fund index.
Small surprise, then, that so many financial advisers and savvy investors shun
the stuff.
"I certainly wouldn't recommend gold as part of a traditional asset
allocation," says Paul Merriman, a Seattle investment adviser and market
timer who sometimes trades gold for clients who insist on it. "Gold has really
become more of a speculation than an investment."
And yet some stick with it, including Mr. Eveillard, who also manages global
and international value funds that have returned 18.1% and 12.44%,
respectively, during the past 12 months. "No. 1, gold is a good insurance
policy," he says. "No. 2, currently it's a cheap one."
Mr. Eveillard started his fund, which primarily invests in companies that mine
and process gold, at a time when gold was soaring. Boosters predicted that
demand for gold would outstrip supply, driving prices even higher. Then,
instead of rising more, gold sank.
Still, especially at such low prices, gold continued to speak to Mr. Eveillard,
a bargain-hunting value manager by temperament. But increasingly there
were signs that gold had lost some of its appeal as a haven. During the
stock-market crash of 1987, gold didn't fare particularly well; nor did the
Gulf War in 1990 drive up demand.
By 1998, even Mr. Eveillard had grown discouraged. He considered
shutting the fund down. "I said to myself, 'Patience is a virtue, but
stubbornness was not,' " he remembers.
Later that year, however, the Russia debt crisis struck, and the Long Term
Capital Management hedge fund teetered on the brink of failure before being
rescued by a consortium led by Federal Reserve officials. "And I thought,
'Hey, if the financial system is so fragile, inherently fragile, that the Fed has to
arrange the bailout of a hedge fund, I'm not going to close my gold fund,' "
Mr. Eveillard recalls.
But once again, the world made it through the crises without much lasting
benefit to gold. Others say investors preferred the safety and reassurance of
cash and U.S. government securities to that of gold. Mr. Eveillard chalks it
up to another save by Fed Chairman Alan Greenspan.
"Nothing happened to gold, because Mr. Greenspan proceeded to throw a
lot of money at the problem, and that was enough to douse the fire," Mr.
Eveillard says. He reasons that Mr. Greenspan and other central bankers
fear they would lose their reputations for mastery of the economy if investors
turned to gold rather than national currencies in times of trouble.
For now, Mr. Eveillard plans to stick with gold, however tarnished its image.
Eventually, he reasons, some crisis will flare that central bankers can't or
won't salvage, or demand will finally outstrip production, and then gold will
shine again. But he won't altogether rule out the possibility of eventually
shutting the fund and turning his attention to something else.
"Every now and then," Mr. Eveillard says, "I say to myself, 'Hey, maybe I'm
missing something big.' "
Write to Theo Francis at theo.francis@wsj.com
KJC |
