To figure out what's driving the price of gold, look no further than global government policies, said Evan Smith, manager of the $700 million U.S. Global Investors Global Resources Fund Ticker:(PSPFX).
“We see gold as an insurance policy against bad government decision making,” he said. “What's really pushed gold up to the levels is sovereign-debt risk all over the world.”
While Mr. Smith has increased his weighting in energy sector stocks, relative to the basic-materials and mining sectors, he has also doubled his exposure to gold company stocks, which now represent 20% of the fund.
Two of the positions he owns for exposure to the gold sector are Barrick Gold Corp. Ticker:(ABX) and Randgold Resources Ltd. Ticker:(GOLD).
“You see the [government] programs being introduced, and you wonder how they're ever going to be funded,” he said. “And there's no reason why investors [around the world] couldn't start to worry about sovereign-debt issues here in the United States.”
In terms of energy, which represents 60% of the fund, Mr. Smith has held on to Anadarko Petroleum Corp. Ticker:(APC), despite its punishing association to the oil spill in the Gulf of Mexico — Anadarko is partial owner of the well that is currently leaking there.
“Outside of that one well, we like the company, and we think it was unfairly punished because of that one well,” he said.
Since the April 20 explosion of the Deepwater Horizon oil rig in the Gulf, Anadarko's stock price has fallen by 48.4% to around $38.
The S&P 500 index, over the same period, declined by 15.3%.
“We like to think there is still some opportunity in Anadarko,” Mr. Smith said. “But it has not been comfortable [holding the stock] on the way down.”
The fund has declined 7.3% from the start of the year, which compares with an 8.3% decline for the S&P 500.
Mr. Smith describes the overall investment strategy as both top-down and bottom-up, because he takes an 18-month perspective on commodities and then structures the portfolio accordingly by selecting individual stocks to fit the allocations.
His heavy weighting in gold is proof that the fund is not just a typical global natural-resources fund that relies largely on the energy sector for benchmark performance.
“We are fairly diversified, and because we are truly global, we'll buy in local currencies,” he said.
Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.
