PORTFOLIO SPOTLIGHT returns from their investments .”
Belmont and Kertsos evaluate a mining company ’ s assets by gauging its proven and probable reserves , and they invest more in companies already in production . They seek a margin of safety by looking at a company ’ s operation , capital and geopolitical risks .
“ You want to find gold mining companies that are able to grow gold production and gold reserves per share ,” Kertsos explains . “ If the management team can do that through the cycle it should be able to grow free cash flow per share . So we need to have good judgment about which management teams can grow their company through operational execution , exploration success and countercyclical capital allocation .
“ We don ’ t mimic any index . We take a very bottom-up approach ,” he adds .
According to First Eagle , $ 10,000 invested in the gold fund ’ s Class A shares at its inception in 1993 would ’ ve been worth nearly $ 46,000 as of last year ’ s third quarter , whereas the same investment in the FTSE Gold Mines Index would have seen a loss and been sitting around $ 8,400 . The fund tops the index over the 10- , five- and three-year periods as well , though the disparity was much less within the various periods ( both the First Eagle fund and the index returned less than the hypothetical $ 10,000 during the most recent three-year period ).
Old And New
Besides gold , the most investable precious metals include silver , palladium and platinum . Palladium and platinum have various industrial uses , but they ’ re known mainly for their role in catalytic
Portfolio Statistics
Number Of Positions 19 Average Mkt . Cap
$ 11.97 billion P / E Ratio 18.9x Std . Dev Fund / Benchmark 23.78 / 35.58 Turnover Ratio 16.4 % Net Expense Ratio 0.94 %
Portfolio stats as of 11 / 30 / 23 . Standard deviation ( three-year period ) versus the Morningstar US Global Investors Gold & Precious Metals Index as of 12 / 31 / 23 . Fund turnover as of 10 / 31 / 23 . Sources : First Eagle Investments and Morningstar . converters that reduce automobile pollution . As a result , their prices are typically tied to swings in the automotive industry .
Silver is used both in jewelry and in industrial applications such as electronics and solar power . The First Eagle fund recently had a roughly 5 % allocation to silver bullion .
“ Silver , along with oil , have the most industrial uses among commodities ,” Kertsos says , adding that it ’ s important to understand economic cycles and how they affect the relationship of gold and silver valuations . He notes the price of gold bullion dropped initially during the global financial crisis but ultimately rose 5.8 % in 2008 , while silver ended that deflationary year down 28 %.
“ Silver does worse than gold during deflationary environments , but does better than gold in inflationary environments ,” he explains . “ It ’ s one of the few commodities that usually does better than gold during periods of inflation .”
Precious metals are as old as Earth itself , but a newfangled item has emerged to rival gold as an alternative asset . Bitcoin , which arrived as a cryptocurrency in 2009 , was touted last October by asset management firm AllianceBernstein as a safe-haven asset whose performance had topped gold during the previous five years .
Naturally , the folks at First Eagle are quick to defend their turf . One big problem with bitcoin , they say , is that it ’ s much more volatile than gold . “ But more importantly , given that it ’ s driven by technology and is a man-made construct , it can ’ t compare to gold ’ s long-term track record ,” Belmont says . “ Bitcoin is an asset class that trades more like a growth stock rather than driven by the influence of real interest rates .”
Never Static
The World Gold Council ’ s 2024 investment outlook points out a number of factors that could either help or hurt the price of gold . A soft landing for the U . S . economy , for instance , could mean flat or slightly negative returns , whereas U . S . Treasurys and U . S . equities might benefit . The organization based that projection on the past two soft-landing environments — one from the mid- ’ 80s ; the other from the mid- ’ 90s .
But gold could get a boost from geopolitical tension as key elections take place in certain major economies . The price of gold could also stand to benefit if central banks continue buying the metal as a way to diversify their reserves ( and thus reduce their reliance on U . S . dollars ). Any
What differentiates the First Eagle fund from competitors is its concentrated portfolio — it held 19 positions as of November 2023 . “ In general , competing funds often hold 50 to 60 securities ,” Kertsos says .
widening of the Israel-Hamas conflict — its outbreak in October gave gold a boost to close out last year — is a wild card .
Gold has been around forever , but it ’ s never static . Evidence suggests it was first used in jewelry and other decorative objects as early as 6,000 years ago . Today , a microscopically thin layer of gold covers the mirrors on the James Webb Space Telescope , helping it gather and measure infrared light coming from the deepest reaches of space and capture amazing images of objects located billions of light years from Earth . And through it all , gold manages to maintain its value , hammering home the point made by Kertsos and other gold proponents that it can be an effective insurance policy for portfolios .
“ We have very loyal clients who believe in our philosophy where we say there are many known unknowns and unknown unknowns , and it is important to own gold and be agnostic about the short and medium terms of where gold prices will be ,” he says .
PHOTOGRAPHY COURTESY OF FIRST EAGLE INVESTMENTS JANUARY / FEBRUARY 2024 | FINANCIAL ADVISOR MAGAZINE | 47