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Gold, precious metals, Oil & Gas, Timber as asset classe

 
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peteyperson
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PostPosted: Mon Sep 15, 2003 8:11 am    Post subject: Gold, precious metals, Oil & Gas, Timber as asset classe Reply with quote

Gold and precious metals

I've recently reviewed Gold as an alternative asset class. Over the past decade it has done poorly, the last 2 years has helped recover from a 40% loss in the prior 8 years (excluding the joint effects of inflation and investment fees from range from 0.6% in the USA to 1.7% in the UK).

I haven't seen the data for the 1980s and prior but I understand Gold to have become a poor performer since the demise of the gold standard.

As a non-correlated asset class, it has been good counter-programming to other market investments that have been down on late but I wonder whether holding an asset class that has two good years during a market down cycle followed by a decade or more of poor years which appear to barely breakeven in real money terms makes this a worthwhile effort overall.

I would be interested to hear any pro and con arguement on gold or precious metal asset classes. Here in the UK the cost of investment is 4-5% sales load and 1.7% annual mgmt fees.

Why haven't Gold mining company shares not get swept down with the falling market? Gold is seen as a safe haven, does the force of this sentiment counteract the general investing sentiment to sell during the last five years?

Natural Resources / Oil & Gas

This asset class seems to have fallen somewhat out of favour. In the 80s it was in many portfolios. There are many natural resource funds seperate to gold & precious metals. Any thoughts on a holding here? Again the costs for UK investors are on a par with Gold.

Timber

The options here are to buy a selection of timber companies in order to not have all your eggs in one basket by buying a single company. For a small percentage of your portfolio, the transaction costs will be expensive for such a strategy even for a long term holding. Many of the companies have high P/E ratios too.

I wonder with timber, whether if you buy into particularly stocks whether you won't get the benefit of an alternative investment being non-correlated with the market overall. Won't the timber company share price be swept down with the negative sentiment on the market overall? This could also apply to gold share holdings, REITs listed on the market, many gold investments hold listed company shares rather than gold itself etc. I'd welcome comments on this grey area. in my current thinking.

Thank you for any comments, observations or detail of what is in your portfolio, how it may have changed and why it remains. All interesting information.

N.B. Gold result data referred to comes from American Century Gold Fund factsheet.

Petey


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Mike
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PostPosted: Mon Sep 15, 2003 9:44 am    Post subject: Reply with quote

I am thinking that many commodities are rising in response to the fed's determined effort to create inflation. The exact response of each individual commodity will depend upon supply/demand factors in its respective niche.


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raddr
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PostPosted: Mon Sep 15, 2003 3:23 pm    Post subject: Re: Gold, precious metals, Oil & Gas, Timber as asset cl Reply with quote

peteyperson wrote:
Gold and precious metals

I've recently reviewed Gold as an alternative asset class. Over the past decade it has done poorly, the last 2 years has helped recover from a 40% loss in the prior 8 years (excluding the joint effects of inflation and investment fees from range from 0.6% in the USA to 1.7% in the UK).

I haven't seen the data for the 1980s and prior but I understand Gold to have become a poor performer since the demise of the gold standard.


Gold stocks (as opposed to physical gold) have actually been decent performers since 1942 (as far back as my data goes), coming in with a CAGR of about 4% vs. 7% or so for the S&P500. Over long periods of time gold stocks can drastically over or underperform. For example, gold stocks beat the S&P500 by an average 13% per year (7% annualized) from 1960 to 1980. The situation essentially reversed (and then some Wink) from 1980 to 2000.

My $0.02: I believe that we are moving again into a period where gold stocks will likely beat the S&P500 for an extended period, though with much greater volatility. I would not be surprised at all to see outperformance of similar magnitude to what occured from 1960-1980 as paper assets continue to lose their luster and govts. continue to debase their currencies at an alarming rate.


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peteyperson
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PostPosted: Mon Sep 15, 2003 5:37 pm    Post subject: Re: Gold, precious metals, Oil & Gas, Timber as asset cl Reply with quote

Hey raddr,

I'm presently looking at a couple of Gold funds from Merrill Lynch.

If you have any comments on the information below, I would be interested to hear it.

S&P Factsheet (Adobe PDF)
http://www.funds-sp.com/servlets/com.sandp.urls.PDFFetcher?key=eq1UT017325.pdf&type=0&lang=en

Fund Return - How does it compare to your Gold returns?
http://www.fiv.sp.co.gg/fiv/fund/en/performance.cfm?sedol=017325&lang=en&db=SB

4 available funds
http://www.fiv.sp.co.gg/fiv/sector/en/index.cfm?sector=SB745&lang=en&db=SB


I've also found a handful of UK property funds that cost roughly the same, 5% load and 1.7%, and returned 7%+ annualized return over the last three years. Nice bit of albeit costly non-correlated return compared to the markets over the last 3 years. The alternative there is simply to buy a selection of listed property investment companies and pay the share purchase costs and stamp duty instead. On a limited investment, difficult to get the transaction costs down for the overall investment though.

Two property funds invest 60% in the Freehold and 40% in stocks, bonds & cash. The last one is solely stock market investments, no direct holdings and management of property. What are your thoughts on the different type of property fund in that regard? Better to steer for directly managed insted of all property stocks to try to limit the correlation to a down market?

Petey
raddr wrote:
Gold stocks (as opposed to physical gold) have actually been decent performers since 1942 (as far back as my data goes), coming in with a CAGR of about 4% vs. 7% or so for the S&P500. Over long periods of time gold stocks can drastically over or underperform. For example, gold stocks beat the S&P500 by an average 13% per year (7% annualized) from 1960 to 1980. The situation essentially reversed (and then some Wink) from 1980 to 2000.

My $0.02: I believe that we are moving again into a period where gold stocks will likely beat the S&P500 for an extended period, though with much greater volatility. I would not be surprised at all to see outperformance of similar magnitude to what occured from 1960-1980 as paper assets continue to lose their luster and govts. continue to debase their currencies at an alarming rate.


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raddr
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PostPosted: Wed Sep 17, 2003 2:53 am    Post subject: Reply with quote

Petey,

I'm afraid I'm not really up to speed on any of these funds. Looks like the Merrill gold funds have done quite well. I must admit, however, I have a bias against them since they administered our pension plan for a number of years and did a poor job. Their mutual funds had high expenses and performed rather poorly at the time (late 80's/early 90's).


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wanderer
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PostPosted: Wed Sep 17, 2003 3:25 am    Post subject: Reply with quote

I've also found a handful of UK property funds that cost roughly the same, 5% load and 1.7%, and returned 7%+ annualized return over the last three years. Nice bit of albeit costly non-correlated return compared to the markets over the last 3 years.

Well, VGPMX (not an index, but close) is up 23.6% p.a. over the three years thru June 30, 2003. 15% through 5 years.

I am totally amazed that, in the 21st century, in the 'global village', you can't go one thatched hut over and get a much better performing option at an er of about 67% less. What excuse can the jackasses (sorry - this do piss me off, it's blocking an avenue that a prudent investor might reasoanbly pursue to facilitate his retirement for chrissake[!]) who limit your choices possibly come up with? Perhaps they're just testing your ability to maintain the characteristic British 'stiff upper lip'? Wink

Maybe I came in late - are you sure you can't invest in these funds?? My Australian friends do.



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wanderer

The field has eyes / the wood has ears / I will see / be silent and hear
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peteyperson
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PostPosted: Thu Sep 18, 2003 6:50 am    Post subject: Reply with quote

Nope. The only Vanguard funds you can invest in are based in Ireland and need $100k minimum per fund. Even if they offered enough funds, diversification would be impossible unless you start off as a millionaire! I do not understand at all why Vanguard haven't gone after the UK market.

British ' stiff upper lip ' is no more. The British have changed dramatically from the old films you may have seen that give that impression. A fraction of 1% speak like Hugh Grant, yet most people abroad think that is British. The British laugh at the way Hugh Grant speaks and anyone who did would be teased and avoided frankly. That is for the seriously rich in high society like the Hilton Sisters.

Global village is an idea, not a reality.

Europe is still a wide place with complexities that prevent cross-border offerings. There is talk of it but the recent rejection of the Euro in a vote of one of the big European countries may prevent the UK joining sooner or at all. America has succeeded over the last 150 years because it is such a large country with a high population all speaking the same language (more or less). You just don't get that kind of potential market penetration with a single product in the UK and across Europe taken working out all the cultural differences of traditions, religions, language, marketing without economies of scale, distribution without economies of scale etc. Financial products should be easier because it excludes some of those issues. Euro-denominated products will become more common with the ETFs, but they only make sense to buy if the UK moves to the Euro reducing the currency difference issue from country to country or as a deliberate hedge against the pound sterling.

Petey
wanderer wrote:
I've also found a handful of UK property funds that cost roughly the same, 5% load and 1.7%, and returned 7%+ annualized return over the last three years. Nice bit of albeit costly non-correlated return compared to the markets over the last 3 years.

Well, VGPMX (not an index, but close) is up 23.6% p.a. over the three years thru June 30, 2003. 15% through 5 years.

I am totally amazed that, in the 21st century, in the 'global village', you can't go one thatched hut over and get a much better performing option at an er of about 67% less. What excuse can the jackasses (sorry - this do piss me off, it's blocking an avenue that a prudent investor might reasoanbly pursue to facilitate his retirement for chrissake[!]) who limit your choices possibly come up with? Perhaps they're just testing your ability to maintain the characteristic British 'stiff upper lip'? Wink

Maybe I came in late - are you sure you can't invest in these funds?? My Australian friends do.


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