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The Midas Manager
By Dawn Smith
DIAMONDS MAY BE a girl's best friend, but over the past year, precious-metals funds sure have been shareholders' pals. That's because investors look toward sure bets in uncertain times. The theory (at its most basic) is that no matter how rough things get, precious metals like gold are always going to be worth something.
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Over the past year, this group of funds is up 42%, but the fund shining the brightest is the First Eagle SoGen Gold fund (NASDAQ:SGGDX - news) led by Jean-Marie Eveillard. The fund sports a 69% gain, making it the top-returning precious-metals portfolio over that period, according to fund-tracking firm Morningstar.
Who:
Eveillard, 62 years old, is the president of the First Eagle SoGen Funds and co-manager of the family's gold fund alongside Charles de Vaulx. Born in southwest France, Eveillard studied at the French economic institution Ecoles de Hautes Etudes Commerciales and was introduced to the world of investments during a summer internship at a financial newspaper. Upon graduation in 1962, Eveillard joined the French bank Societe Generale as a securities analyst, and six years later moved to New York, where he still lives today. In 1970, he became an analyst for the SoGen International fund, which has since become the First Eagle SoGen Global fund (NASDAQ:SGENX - news).
His View:
With gold prices hovering near their two-year high, Eveillard's portfolio has flourished, since he buys stocks designed to rise exponentially as the price of the metal climbs. Mainly, he buys gold mining stocks because of the leverage they deliver. ``Historically, when the price of gold goes up 10%, the price of gold-mining stocks goes up 30% or more,'' he says. ``Of course, it works both ways.'' During his research, he steers away from companies that hedge gold (i.e., those that set a price for future transactions), since these stocks don't track the metal's price well. That usually means shunning investments in Australia, where hedging is rampant, and instead concentrating on mines in the U.S., Canada and South Africa.
Eveillard realizes that a gold fund isn't necessarily suitable for all investors. ``Investors have to decide whether they think the price of gold is going up,'' he says, or they need to look at the investment as a form of protection during turbulent times. The psychological barrier against gold investing was particularly high in the 1990s, he notes, as the market quickly overcame various crises — like the Asian financial meltdown and the collapse of Long Term Capital Management — often with the help of Fed Chairman Alan Greenspan. However, he sees many of the more recent crises having a longer impact, from the bursting of the technology bubble to the weakening of the economy to the Enron (Other:ENRNQ) blowup.
What He's Buying:
Freeport-McMoRan Copper & Gold (NYSE:FCX - news), based in New Orleans, is an Eveillard favorite that he's been adding to lately. It's relatively inexpensive compared with most gold stocks, but it carries political and economic risk, since its mines are located in Indonesia. Another hybrid company on his list is Industrias Penoles of Mexico, because of its dominance in silver mining, although it also produces gold and zinc.
What He's Shunning:
Eveillard stays far from so-called ``junior'' mining companies, which are involved in exploration but have no production operations. ``First of all, most of them are frauds,'' he says. Second, their success lies not in the price of gold, but ``whether their exploration leads to production or not,'' he adds.
Quote/Unquote:
``I see gold as an insurance policy, and a cheap one, because gold had been going down for 20 years,'' he says.
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