South African gold stocks offer better value than US
LLOYD George Management and Morgan Stanley Asset Management offer gold sector funds to Hong Kong investors.
The LG Strategic Gold Fund Limited is a Bermuda-registered offshore, open-ended fund almost totally invested in the gold-mining sector, with a 5 per cent cash component as at July this year.
Its biggest holdings include Barrick Gold, Newmont Mining, Sons of Gwalia, Euro-Nevada, East Rand, Normandy Mining and Placer Dome. Twenty-nine per cent of assets are in Canada, with the remainder spread about equally through the United States, South Africa and Australia.
Funds heavily exposed to the gold-mining sector offer a leveraged exposure to gold price movements because gold sector share prices tend to move sharply according to major movements in the price of the underlying metal.
Since the LG Strategic Gold Fund was set up in December 1994, it had lost 5 per cent of its value in US dollar terms by July this year, although it was showing a return of 8.32 per cent over the six months to July. However, the fund lost 12.2 per cent in July while the FT World Gold Mines Index fell by 15.16 per cent.
The Morgan Stanley SICAV Gold Fund returned 33.9 per cent between its launch in April last year and June this year, in US dollar terms, not counting investment management fees and assuming all net income was re-invested.
The fund, managed from Idaho in the US by Peter Palmedo, was holding 23 per cent cash at the end of June. Its biggest portion was 25.42 per cent invested in South Africa followed by Australia with 21.91 per cent, Canada with 15.77 per cent and the US with 11.31 per cent.
In its second quarter review of the fund, Morgan Stanley said it remained convinced that US gold shares were overvalued, with South African stocks offering better opportunities because of the weakness of the rand.
'By any available market sentiment indicator, current investor sentiment towards gold matches extremely low readings observed during January 1995 and early 1993,' a spokesman said.