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The past few months have been marked by rising levels of fear and uncertainty resulting from many concurrent macro events. These include the COVID-19 pandemic, of course, and the flight to safety that the economic lockdown generated; China’s forcible takeover of Hong Kong and its incursions along India’s northern border; the trade war between the U.S. and China; and now the growing backlash against China’s heavy-handed meddling in the domestic affairs of other nations, which could dampen global trade for some time to come. Consequently, as the ultimate safe-haven asset, gold bullion is up 18% in the first six months of the year.
The mining sector has benefitted even more, as year-to-date, the S&P/TSX Gold Index is up 23%. Precious metals funds have enjoyed the ride, and the Dynamic Precious Metals Fund is a top-quartile performer, up 32%, compared with the category average of 24%. Its consistently strong performance in both the short- and long-term periods, with annual FundGrade A+® Awards since 2016, make it one of my favorites.
Manager Robert Cohen uses a fundamentally-driven, bottom-up investment process looking at companies anywhere in the world involved in the exploration and production of precious metals. The fund may also hold gold bullion directly.
In practice, given the active management, the fund tends to be concentrated in small- and mid-sized companies, unlike the benchmark, which is weighted by market capitalization.
Top holdings as of May 31 included Wesdome Gold Mines Ltd., Great Bear Resources Ltd., Bellvue Gold Ltd., Silvercrest Metals Inc., and Northern Star Resources Ltd.
So it’s notable, given the volatility of the smaller-cap space, that the manager takes a very patient approach, with portfolio turnover averaging only 30% over the past few years. At the end of May, the fund had 57% invested in Canadian equities and 42% in Australian companies. The balance is held in cash.
Like all precious metals funds, performance has been volatile – nearly four times that of the broader market. Another drawback is that the fund is highly dependent on the outlook for gold. While it’s been strong recently, it has experienced several periods with disappointing results, sinking well into double-digit negative territory from 2011 to 2013.
The 5-year average annual compounded rate of return to May 31 was 25.2%, which led the category and outpaced the broader Canadian market. I don’t expect this blistering pace to continue, unless we see the geopolitical environment deteriorate even more. Still, for investors looking for a solid fund that provides exposure to gold and precious metals companies, this one is at the top of my list.
Dynamic Precious Metals Fund
Fund company: Dynamic Funds
Fund type: Precious Metals Equity
FundGrade: A
FundGrade A+ Awards: 2016-2019
Style: Small Cap Growth
Risk level: High
Load status: Optional
RRSP/RRIF suitability: Poor
Manager: Robert Cohen since Nov. 2000
MER: 0.08% (Series I)
Fund codes: DYN1146 (Series I: No-load), DYN046 (Series A: Front-end load),
Minimum Investment $500
Dave Paterson, CFA, is a money manager and an expert on investment fund research and due diligence on a variety of investment products.
Notes and Disclaimer
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Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently, and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice. Dave Paterson is employed as an advising representative (portfolio manager) by Empire Life Investments Inc. (ELII), a subsidiary of Empire Life Insurance Company. ELII is the investment fund manager and portfolio manager of the Empire Life Mutual Funds and the portfolio manager of the Empire Life Segregated Funds (collectively, the Empire Funds). As such, his employment and his compensation may be connected to the success of ELII and the Empire Funds. From time to time, the Empire Funds may buy, sell, hold, or otherwise have an interest in securities that may be discussed in this report.
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