AMERICAN CENTURY GLOBAL GOLD FUND
The gold story has pretty much been a downward spiraling one ever since hitting its $850 per ounce high in the 1980s. Today, that precious metal looks great on fingers and wrists but whether it's a fit for everyone's portfolio all depends.
Bill Martin has been portfolio manager of the American Century Global Gold Fund ever since 1990. Ask him about what's been going on within the world of gold over the past decade and you'll get an interesting history lesson about production and supply and demand.
"In the big picture it's about mine supply and scrap supply, " says Martin." The mine supply is what they dig out of the ground every year and scrap is what people take off their fingers and try to resell."
Each year Martin said about 3100 tons of gold come to market and that demand falls into two general categories---industrial and jewelry. Jewelry is the more dominant of the two demanding about 3100 tons per year.
With demand greater than supply, central banks sell off some of their gold reserves each year to make up the difference. But that's only part of the story. Each year gold mining companies need financing to mine, sell their gold forward and then wait to see what economic environments prevail. It's a business that's volatile be can also be very rewarding.
American Century's Global Gold Fund has 45 stocks in its portfolio. The companies it invests its assets into are predominately mining ones. "We probably have one of the more pure gold funds in the peer group, " says Martin " And this is a fund that typically will lead our peers in an up market and be at the bottom on the way down." (The market he is referring to is the gold one.)
Here's more about gold and the fund:
Q: In what kind of market conditions is gold supposed to do well?
Martin: Gold is sort of a metaphor for people's sentiments and confidence in central banks and government leaders. Over the past 10 years, politicians (in the U.S.) have gained our confidence because they've toned down deficits and we've seen inflation arrested. That's not an ideal environment for gold.
To do well, you've got to have not necessarily high inflation but unexpected inflation. And, a loss of confidence in people's sentiments toward governments and the central banks.
Q: From an investors point of view, what do think has happened to gold funds over the past few years?
Martin: What's happened is, we've forgotten about asset allocation and risk diversification and became kind of a growth stock or cash market. So people have overlooked these other kinds of assets in their diversification scheme.
Q: Tell me about one of the fund's holdings.
Martin: Barrick has been our largest holdings since almost forever. It has the best management and lowest cost mines in the industry. As a result, they are able to negotiate some financing terms that the rest of the industry might not have available to them. Meaning that, they can borrow at what's called the lending rate; and when they sell their gold forward the banks trust that they will be able to mine their gold and bring it to market. So, they'll lend them money to build new capital infrastructures at very low rates.
Q: Because of its volatility, is this an investment worth even considering if you're a mutual fund investor?
Martin: We recommend a small, two to five percent weighting and think it's more for an investor in the distribution phase of their investing cycle rather than the accumulation phase.
Martin: Because we see it more for people who are trying to smooth out their portfolio's ride and are on a fixed income rather than for those who are in their wealth accumulation phase.
Q: So, when I look at the performance of the average gold fund, which, according to Lipper Inc. was almost flat for the year through March 15. Then, look at the performance of the average stock fund, which was down almost 12 percent over the same time period, owning some gold would smooth out the overall performance of my portfolio holdings. Right?
Q: Do you consider it a long- or short-term investment?
Martin: Some people will try to market time this sector because it takes such tremendous lurches from time to time. Looking back historically, in 1992 we were up 86 percent, then there was a period in September of 1999 the fund was up 43 percent in just a few weeks and in '98 it was up about 55 percent during one month. So some people are really attracted to the leverage in this market. But, again, I see it more as an asset allocation tool and the kind of investment that you put in your portfolio and forget about. So it's not a short-term investment because you've have to be in them over the long-term to catch those (price) hops.
American Century Global Gold Fund:
|TOP HOLDINGS||Barrick Gold Corp.; Newmont Mining Corp.; Placer Dome Inc.; Gold Fields Ltd.; and Anglogold Ltd., as of 1/31/01.|
|PERFORMANCE||Year-to-date through March 21, up 0.25 percent. In 2000, it was down 24.52 percent.|
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