After Record Gains, Investec Fund Lets Go of Some Gold Stocks

  • JSE gold shares surged in first half amid stimulus policies
  • Value Fund keeps platinum; money manager expects shortage

A record rally in gold mining stocks helped the Investec Value Fund post a return of 68 percent this year, best bar one of 795 South African funds tracked by Bloomberg. Now it’s time to cut down on bullion, says John Biccard, who oversees the 5.85 billion rand ($430 million) fund.

The Cape Town-based fund sold half its gold stocks two months ago, lowering the weighting to 15 percent from 30 percent. Even so, AngloGold Ashanti Ltd., the continent’s biggest miner of bullion, remains its largest single holding, Biccard said in an interview on Sept. 28.

“All the commodity stocks we’ve got are in gold and platinum and that’s what’s driven the performance,” Biccard said. “The gold position is very vulnerable because it’s a play on low real interest for 10-15 years.”

An index of gold miners listed on the Johannesburg Stock Exchange surged 124 percent in the first half, the most on record for the January-June period, as the price of the metal soared amid unprecedented monetary stimulus by developed nations. The rand weakened at the same time, boosting profits for miners who sell the metal for dollars while paying costs in local currency. The index has pared gains this quarter to 96 percent for the year, still heading for the best annual performance since 2001.

Biccard stopped short of selling all his gold stocks. While the precious metal is vulnerable to a Federal Reserve rate increase, which would strengthen the dollar and drive down the price of bullion, he predicts that won’t happen any time soon. 

“Gold is not really a commodity position -- gold is our alternative currency, so it’s got to do with the perpetual quantitative easing in response to high debt levels,” he said. “And it’s our view that QE will continue in various forms for many years.”

Keeping Platinum

Investec held onto its platinum stocks, which account for 20 percent of holdings. The platinum price is driven more by physical supplies and potential shortages than gold, Biccard said. The biggest holding in this sector is Impala Platinum Holdings Ltd., which has gained 170 percent this year.

“We’ve kept 90 percent of the position on, and that’s mainly in Impala Platinum, which we see as very undervalued,” Biccard said. “Platinum is similar to gold, but mainly a supply-and-demand issue -- there just isn’t enough supply coming from South Africa in our view.”

Gold is poised for the first annual gain since 2012. The spot price has risen 25 percent this year, compared with a 10 percent decline in 2015. Platinum has rallied 15 percent this year after falling 26 percent in 2015.

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