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Gold Investors Have Doubled Their Money in 2016

Precious metals, natural resources and Latin American funds are the top performing so far in 2016, data from Morningstar reveals

Karen Kwok 6 October, 2016 | 7:30AM

This article is part of Morningstar's Guide to Passive Investing, helping investors make smart choices to meet their long-term investment goals.

Commodity funds have gained 125% this year, making them the best performing sector of 2016. Thanks to a recovery in the oil price and a low interest rate environment, the top funds year to date are all commodity related.

Oil is not the only commodity up since the start of the year – the gold price has rallied 20%, as concerns about the impact of Brexit have seen investors rush to the perceived safe haven, and several precious metals funds are feeling the benefits.

Junior Gold Fund is the top performing fund of the year, with gains of 189%. The fund is managed by Angelos Damskos, who seeks to provide long term capital growth from a globally diversified portfolio investing primarily in gold-related small to mid-sized companies. Looking at this fund’s past five years’ performance, despite an incredible 2016 it has lost money for longer term investors with an average loss of 16% every year for the past five years.

BlackRock Gold and General fund is the only Gold Rated fund by Morningstar analysts that has doubled investors’ money this year. It is up 105% year to date and it has a three-year annualised return of 14%. Besides gold mining shares, it also invests in commodity related companies.

Morningstar analyst Fatima Khizou said this fund remains a strong offering for investors seeking mainstream gold and precious-metals equity exposure in a risk-controlled manner. The fund is also not overly expensive; its ongoing charge is in line with the category average.

Although the negative sentiment towards gold securities over the past few years has put pressures on the fund, it remains one of the largest amongst its category peers, Khizou said.

Another Gold Rated fund BlackRock Global funds – World Gold fund also gained 95.9% year to date, following behind its peers’ outstanding performances. This fund is managed by the same Evy Hambro as BlackRock Gold and General fund. This fund, however, invests globally with at least 70% of its total assets in gold-mining companies. It has a 12.3% three year annualised return.

Other gold funds making great gains so far this year are Way Charteris Gold and Precious Metals Fund Elite, Plurima Earth Gold fund, Craton Capital Precious Metal, Franklin Gold & Precious Metals fund and Investec Global Gold fund.

Natural Resources Funds Make Great Gains

Funds in the natural resources sector are also among the best performers year-to-date. As the US central bank the Federal Reserve continues to put off another interest rate rise thanks in part to Brexit uncertainty, the US dollar has remained soft for 2016. When the US dollar weakens, commodity prices generally move higher. This has resulted in rising commodity prices, boosting share prices of mining companies.

Last week oil prices saw a slight recovery of 6% in the immediate aftermath of the surprise news that the Organization of the Petroleum Exporting Countries managed to agree on a production cut.

Miners and oil explorers also boosted FTSE 100 performance this year, primarily on the back of higher commodity prices, with some like Anglo American having seen their share price more than triple, says Nick Peters, multi asset portfolio manager at Fidelity International.

As a result, it comes as no surprise that three funds within the natural resources sector have are among the top 20 best performing funds of 2016 so far.

Old Mutual JPM Natural Resources is one of the top performers in the sector. It has gained 68% year to date. Despite of this year outperformance, lost money over a three year period. Its ongoing charge is 1.7%.

The Bronze Rated JP Morgan Natural Resources gains 68% year to date. The fund is relatively cheap, with an ongoing charge at 0.93%.

Khizou believes this fund is a compelling offering within the resources space for investors who understand its risks and distinct features. This fund’s manager Neil Gregson has spent most of his career in the resources sector, and his accumulated knowledge and expertise are particularly relevant for this fund. Gregson is a capable manager who shares the fund’s long-held philosophy and is able to add value over the long term, Khizou added.

The Silver Rated First State Global Resources also gains 62% year to date. It invests in equities in the natural resources and energy sectors worldwide. This fund remains a high-quality way to invest in resources-related equities, said Khizou. The long-term track record remains solid and is significantly ahead of the Sector Equity Natural Resources Morningstar Category average, though near-term performance has been weak.

Its ongoing charge is well below the category median, and Khizou continues to believe this is one of the best offerings available in this space, underpinned by a well-resourced team with high-calibre individuals and an established and diligent process. 

Latin America: A Proxy for Commodity Investment

Funds invested in Latin America stocks were also among the best performers in 2016 – which should come as no surprise as the market is heavily biased towards commodity stocks. The Brazilian economy for example is 10% natural resources, and the country is one of the top 10 gold producers in the world.

The Bronze Rated Aberdeen Latin American Equity is up 67% year to date and it has a 3% three year annualised return. The fund remains a compelling choice within its sector, managed by a team we regard highly, Morningstar analyst Lena Tsymbaluk said.

“One of this fund’s strengths lies in the team approach and the depth of the analytical resource of Aberdeen’s 18-strong global emerging-markets team, which is headed by seasoned investor Devan Kaloo,” Tsymbaluk said.

The team invests for the long term and pays little attention to the benchmark when constructing the portfolio. It continues to benefit from the consistent and sensible approach undertaken by a stable and experienced team which has resulted in a strong long-term track record, Tsymbaluk added. The fund’s ongoing charge is at 2.03% which is in line with the Morningstar Category average of 2.11%.

Another fund investing in Latin American equities, Scottish Widows Latin America fund also gains 68% year to date and it has 6% 10 years annualised return.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk