Mark Dampier: Gold lacks its old glister but it may still be a shining opportunity


BlackRock Gold & General Funds sitting in the IMA Specialist sector are perhaps some of the most volatile.

The sector contains a wide array of funds providing exposure to specific themes. As such, it can be fairly meaningless to compare specialist funds as you could be comparing healthcare funds with financials, oil-exploration or precious-metals funds.

It is a sector where you often see momentum at play. The specialist nature of its constituents means they can sit at the top or bottom of the performance tables for quite some time.

The opportune time to buy these funds is often when they are flat on their back at the bottom of the tables.

Gold funds certainly fit the bill right now, and one of the best known is BlackRock Gold & General.

Over the past decade the price of gold has risen from around $400 (£235) per ounce to $1,300 per ounce. Even considering the falls from a peak of almost $1,900 an ounce in September 2011 it's a significant increase.

This should have been a boon for gold-mining companies. By keeping costs under control and reinvesting profits wisely, the higher gold price should have been converted into higher profits, dividends for shareholders, and ultimately a rising share price.

Unfortunately, as investors will know, this has not been the case. In recent years, management discipline has been lacking. Cash was not reinvested wisely and costs spiralled, eroding profit margins and leaving companies ill-equipped to cope with a fall in the price of gold. Earnings have collapsed and investors lost confidence, resulting in sharp share-price falls.

Earnings have now dropped to such a low level that they are very sensitive to changes in the gold price.

The team at BlackRock don't see valuations getting back to previous levels as there is simply not enough production growth to warrant it.

The fund has a general bias towards larger and medium-sized companies with a distinct preference for mature businesses that are either in or on the verge of production. The general aim is for the portfolio to be diversified, although it's worth being careful here as clearly the fund has significant exposure to gold miners.

At present, approximately 71 per cent of the fund is exposed to gold, 14 per cent to silver and 15 per cent to other metals and mining companies, including platinum, palladium and diamonds.

During 2013 the fund was skewed towards gold-mining companies with high-quality reserves, growing production, and low costs, in the expectation these companies would perform better during a challenging period.

Since the end of 2013 the team has also added to companies undergoing a turnaround, by cutting costs or replacing management. Current holding Barrick Gold Corporation reduced its costs by $2bn in 2013, has resolved structural problems and recently appointed a new chairman.

The fund also has exposure to companies which own royalties in other mining operations. Royal Gold owns a royalty on Barrick's production, giving exposure to Barrick without having to own too much in the shares.

There is also just over 9 per cent of the portfolio invested in Franco Nevada, another royalty company with rights over production from Newmont Mining Corporation and Barrick mines, which are long-life, high-quality assets.

The stock has performed well; the team have stopped adding to the position and is taking profits to add back to the underlying miners which look relatively undervalued.

While the fund has suffered significant losses over the past three years, it has outperformed its benchmark, the FTSE Gold Mines Index. However, this is poor consolation for investors.

I hold the fund myself but I admit my mistake was not to take a profit a few years ago.

Perhaps that is the lesson with specialist funds. If you are enjoying a healthy profit it could be time to walk away.

Despite a significant drop in the market, I don't believe now is necessarily the time to give up.

If anything, you might want to dip a toe in the water or top up existing holdings.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Arts and Entertainment
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
Arts and Entertainment
Inside the gallery at Frederick Bremer School in Walthamstow
tvSimon Usborne goes behind-the-scenes to watch the latest series
Life and Style
A picture taken on January 12, 2011 shows sex shops at the Paris district of Pigalle.
newsThe industry's trade body issued the moratorium on Friday
Winchester College Football (universally known as Winkies) is designed to make athletic skill all but irrelevant
Life...arcane public school games explained
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
Life and Style
Silvia says of her famous creation: 'I never stopped wearing it. Because I like to wear things when they are off the radar'
fashionThe fashion house celebrated fifteen years of the punchy pouch with a weighty tome
i100(and it's got nothing to do with the Great British Bake Off)
Angelina Jolie with her father Jon Voight
peopleAsked whether he was upset not to be invited, he responded by saying he was busy with the Emmy Awards
Bill Kerr has died aged 92
peopleBill Kerr appeared in Hancock’s Half Hour and later worked alongside Spike Milligan and Peter Sellers
news It's not just the world that's a mess at the moment...
footballPremiership preview: All the talking points ahead of this weekend's matches
Keira Knightley poses topless for a special September The Photographer's issue of Interview Magazine, out now
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
Mario Balotelli pictured in his Liverpool shirt for the first time
Life and Style
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Data Scientist (SQL,Data mining, data modelling, PHD, AI)

    £50000 - £80000 per annum + benefits+bonus+package: Harrington Starr: Data Sci...

    SAS Business Analyst - Credit Risk - Retail Banking

    £450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...

    Project Manager - Pensions

    £32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...

    KYC Analyst, Birmingham - £200-£250 p/d

    £200 - £250 per day + competitive: Orgtel: KYC Analyst, Key Banking Client, Bi...

    Day In a Page

    Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

    The phoney war is over

    Russian troops and armour pour into Ukraine
    Potatoes could be off the menu as crop pests threaten UK

    Potatoes could be off the menu as crop pests threaten UK

    The world’s entire food system is under attack - and Britain is most at risk, according to a new study
    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
    From Mozart to Orson Welles: Creative geniuses who peaked too soon

    Creative geniuses who peaked too soon

    After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
    Caught in the crossfire of a cyber Cold War

    Caught in the crossfire of a cyber Cold War

    Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

    Salomé: A head for seduction

    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
    From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

    British Library celebrates all things Gothic

    Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
    The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

    Is the Hard Rock Café worth fighting for?

    The restaurant chain's owners are currently embroiled in a bitter legal dispute
    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

    In search of Caribbean soul food

    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
    11 best face powders

    11 best face powders

    Sweep away shiny skin with our pick of the best pressed and loose powder bases
    England vs Norway: Roy Hodgson's hands tied by exploding top flight

    Roy Hodgson's hands tied by exploding top flight

    Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
    Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

    Di Maria and Ronaldo: A tale of two Manchester United No 7s

    They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
    Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

    Robert Fisk: No victory for Israel despite weeks of devastation

    Palestinians have won: they are still in Gaza, and Hamas is still there
    Mary Beard writes character reference for Twitter troll who called her a 'slut'

    Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

    The Cambridge University classicist even wrote the student a character reference
    America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

    America’s new apartheid

    Prosperous white districts are choosing to break away from black cities and go it alone