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Strategies & Market Trends : Galapagos Islands -- Ignore unavailable to you. Want to Upgrade?

To: Jorj X Mckie who wrote (19966)	1/7/2003 11:42:18 AM
From: Techplayer	Respond to of 57110

I just added a little more

To: Jorj X Mckie who wrote (19966)	1/7/2003 11:44:14 AM
From: Techplayer	Respond to of 57110

00:03 ET NEW YORK (CBS.MW) -- American Lance Armstrong may have won Gallic admiration by winning the Tour de France, but the French team behind First Eagle SoGen Gold fund pulled a coup on this side of the Atlantic by ranking first out of all funds in 2002. The $140 million fund (SGGDX) soared by 107 percent -- the only mutual fund to reach triple-digits last year -- compared to the 62.9 percent gain by the average gold fund, according to Lipper. "See related story". Money managers Jean-Marie Eveillard and Charles de Vaulx vaulted to the top by staying one step ahead of their rivals, even when it meant having to create a new security to do so. They constantly looked ahead, getting out of investments that other gold funds went into, and stuck relentlessly to their value investment style. Early on, the fund made a conscious effort to invest in gold mining companies that don't hedge, said de Vaulx. Non-hedgers are more exposed to the movement of gold since they don't sell forward. Non-hedgers they liked included Gold Fields (GFI) and Newmont Mining (NEM) . "The only reason to have a gold fund is to benefit from gold prices," de Vaulx told CBS.MarketWatch.com. The strategy worked well when gold prices were rising in early 2002. But by late May, they realized that gold stocks - which are tied to gold's movement -- had become overvalued relative to the metal. "Some gold stocks started to get ahead of themselves," he said. "To justify their valuations, gold prices needed to keep going up." As gold stocks ascended, SoGen Gold decided to sell some holdings as others continued to chase the sector. The fund's unusual value bent prevented it from buying expensive gold stocks. "We're quite unique," De Vaulx said. "We're known as value investors... We're very careful not to overpay on gold stocks." But there was a problem. Money poured in from investors as the fund took off and they couldn't find many investments they liked. "Many stocks are still somewhat expensive," de Vaulx said. "Over the past three years, there's been tremendous consolidation in gold miners. There are far fewer investable names -- of decent size and good business prospects -- just a handful of names." Thus, the fund decided to invent its own investment: Gold-structured notes. They tapped bankers HSBC and UBS to create the security, which is debt that matures in one year and tied to the price of gold. They also looked to the hedgers they first avoided, such as Barrick Gold (ABX) and Placer Dome (PDG) . As hedgers, these stocks hadn't done well since investors didn't think they could participate in the climbing price of gold. But, de Vaulx noted, these companies had started to "unwind" their hedges to make their business more susceptible to gold prices. The managers decided to play on this transition -- and it paid off. Finally, the fund bet on bullion itself. In September, the fund's board authorized the purchase of gold bullion. Within two months, the fund put 10 percent of its assets then into gold, buying 40,000 ounces at an average cost of $326.50 an ounce. Gold's now trading at $350. Looking ahead, de Vaulx sees gold reaching as high as $400 to $450 an ounce or more in the next year or two if investment demand for the yellow metal gains ground. Typically, the jewelry sector makes up the bulk of the demand for gold. "Today, there's very little investment demand for gold. But we think conditions are ripe for investment demand for gold to appear," de Vaulx said. "Investment demand is the key going forward." A weakening dollar and an uncertain outlook for equities should turn investors toward the precious metal, he believes. De Vaulx noted that Merrill Lynch recently recommended that clients put up to 5 percent of their holdings in gold. Also, the World Gold Council is working on an exchange-traded fund tied to gold bullion that individual investors can buy or sell just like individual stocks, he said. "See related story". If gold attracts more investors, bullion prices would shoot up. If not, he sees gold prices staying at $350 or even falling to $325 an ounce. Another booster: Central banks might cut back on their sales of gold reserves since the precious metal is showing strength and the dollar is weakening. Moreover, de Vaulx thinks China and Saudi Arabia, which have low reserves, might be big buyers of gold going forward. Finally, Japanese insecurity about the health of their economy has prompted some buying of gold, he said. Other troubled economies -- such as Argentina -- could also prompt citizens to buy gold. But de Vaulx realizes that it's still all an educated bet. No one can be certain of the outcome. "Only God knows the future," the fund manager said.