International Gold
International Gold Fund Update
June Quarter 2007
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Download the International Gold Fund Update
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The performance shown in the Fund Update is the gross performance of the fund. To view the net performance of the fund or of the different unit classes of the fund download the Fund Performance Report or visit Fund Performance.
Gross performance returns and benchmark performance shown do not include expenses, fees or tax. Net performance returns are prepared on an exit-to-exit fee basis which includes all ongoing fees and expenses.
Market outlook
- Gold bullion prices were volatile throughout the June quarter. The key driver of bullion price movements throughout the period, both positive and negative, was the inflation outlook in the US. Gold has traditionally been viewed as a hedge against inflation.
- We remain confident on the long-term outlook for the gold market.
- A key trend that emerged throughout the quarter was the divergence in performance of gold equities relative to gold bullion. For example, the price of gold bullion has escalated 2% over the quarter, while gold equities (as represented by the Fund’s benchmark), have fallen 8.8%. This trend has largely been driven by rising costs in the mining of gold bullion, meaning that higher gold prices have not translated into higher earnings, as miners have been unable to control costs.
- We believe that this trend is starting to come to an end, particularly for the mid-cap and junior gold groups while the environment for large cap producers, will remain difficult as they struggle to keep production at stable levels. Accordingly, the Fund continues to favour companies that fall into the small and mid cap categories.
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Composition may not total 100% due to rounding.
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- Conversely, the issues that have hampered the large cap gold producers, in particular, are actually a positive for the industry. We have highlighted for some time the decreasing volume of bullion being mined and the trend noted above only works to exacerbate this. We believe that this will continue to strain the supply side of the gold equation and will work to push gold prices higher.
- Looking to the balance of the year, we expect fundamentals in the gold market are likely to show through and we should start seeing stronger gold prices.
- These fundamentals include a pick-up in jewellery demand, growing interest in gold as a diversifier and stagnant, and even decreasing, mine supply. With this in mind we believe the outlook is also positive for gold equities.
Performance review
The main drivers of portfolio performance during the quarter were:
Positive influences on performance
Over the quarter the Fund’s strong relative performance was aided by our focus on regions that are not suffering production declines or lack of exploration success. Examples include Russia, China and some of the emerging gold producing nations in Latin America and Central Africa which have been very positive for performance. Some of the stocks which out-performed include:
- Cia De Minas Buenaventura, which operates mines in Peru, has benefited from the market’s recognition of hidden value in the stock. The company continues to look exceptionally undervalued relative to the underlying asset base. The strong performance of its investment in a large copper mine has gone totally unnoticed by the market and that is now starting to show through in some of the positive share price movement of the past quarter.
- Newcrest Mining, Australia’s largest gold producer, benefited from speculation that it may close out its gold hedge book, and;
- Harmony Gold also gained favour for closing out some of its hedge book. The company bought back forward sales contracts for the gold produced from its Australian mines at a cost of A$75.8m. This ensures that the stock will be more leveraged to gold price appreciation, which we are strongly in favour of.
Negative influences on portfolio performance
On the negative side, one of the key detractors from performance was Gold Fields, the world's fourth-biggest producer of gold. The company stated that its third-quarter production dropped 3%, with output declining at seven of its eight mines. While this had a negative impact on the stock price, it highlighted the ongoing production declines we are seeing, particularly amongst the larger gold producers. Obviously this bodes well for the price of gold bullion over coming years.
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Gross returns
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Benchmark returns^
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Out-performance*
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3 Month
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-0.58%
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-8.76%
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8.18%
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6 Month
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-0.55%
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-16.02%
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15.47%
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1 Year
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1.63%
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-21.00%
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22.63%
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2 Year (pa)
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34.51%
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11.53%
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22.98%
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Past performance is no indication of future performance.
The performance figures assume the reinvestment of all income and are calculated gross of fees and charges.
*Shows the difference between gross return and benchmark return, and should be considered relative to the target return of the Fund.
^FTSE Goldmines Index (Capital only unhedged in AUD).
International Gold Fund Portfolio as at 30/6/2007*
Rand Quest
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South Africa
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Lihir Gold Limited
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Australia
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Harmony Gold Mining
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USA
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Minefinders Corp
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Canada
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Orezone Res Inc
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Canada
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Newcrest Mining Ltd
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Australia
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Gold Fields Ltd
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USA
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Alamos Gold Inc
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Canada
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Polyus Gold
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USA
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Serabi Mining Plc
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United Kingdom
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Investment objective
The Fund seeks to maximise capital growth over the medium to long-term by investing primarily in gold mining shares through out the world, including Australia.
Fund strategy
The Fund seeks investments primarily in gold companies that the Manager considers to offer the best long-term exposure to gold prices within an acceptable risk level. The Fund aims to invest in companies with strong management track records and with growth potential, both through existing operations and via the construction of new mines. Pure exploration companies would typically comprise only a small part of the portfolio.
Investment will be primarily in gold mining companies in countries including South Africa, Australia, Canada, USA and other mining companies.
Designed for investors who…
- Seek a fund that invests in gold mining shares throughout the world as well as other precious metal, base metals and mining related shares.
- Have a long term investment horizon.
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