Historically, gold has been a safe, solid shelter for investors the world over. During times of war when inflation roars out of control, or anytime stock markets are shaken to their core, investors typically turn to the shiny metal. The reason? When economies are unsteady, currencies and stocks tend to lose value. But whenever confusion takes over, gold somehow finds a way to maintain its value.
That thinking certainly held true for much of the last two years in the mutual fund industry. With terrorism fears, Enron-like accounting woes, and a bum economy pummeling the stock market, precious metals funds — portfolios invested in companies that mine gold — were on a tear. In 2001, for instance, the 20 precious metal portfolios that the mutual fund tracking company Morningstar follows were up 18.77%. In the first five months of 2002, the gold group raced to an average 81.42% lead.
By October, however, gold funds were dimming. As of Oct. 21, 2002, the typical precious metals fund was up 27.50%. Yet, that’s a spectacular increase, given the drubbing the stock market suffered during the first nine months of 2002, but a far cry from the higher altitudes gold reached earlier in the year.
Morningstar fund analyst Christopher Davis says gold funds will always be volatile. As a measure, he points to the group’s standard deviation, a number that charts the
crazy ups and downs of a fund. A stock market index such as the Standard & Poor’s 500 index has a standard deviation of 16%. By comparison, gold funds are twice as impulsive, with a standard deviation of 35%.Gold funds have been historically fickle. In the ’80s, while the U.S. economy was strong
and stock prices moved higher, the price of gold and the share price of funds that invested in companies linked to mining the metal languished. In six of 10 years during the ’90s, gold funds finished in the red, and in 1997 the group stumbled to an average loss of 40%.Will the same jitters that drove gold skyward in
early 2002 resurface in 2003? Terrorism fears have subsided and worries over accounting scandals seem like old news. There’s nary a trace of inflation in the U.S. economy. In fact, there’s some concern whether gold can keep pace. Some economists think deflation may be a factor to contend with in the coming year. “Under those circumstances (deflation), investors can look for commodity prices — and often enough gold — to come down markedly,” says Davis.If you’re interested in gold, we’ve enlisted Morningstar to provide a list of funds that invest in precious metals stocks. As a rule of thumb, Davis says you shouldn’t devote more than 5% of your portfolio to funds focusing on a given industrial sector, including a portfolio limited to precious metals. He also recommends you review a mutual fund’s expenses. Gold funds spend an average 2.05% of assets on expenses, a rather high amount for mutual funds. Davis says Morningstar’s favorites tend to be thrifty funds with good, long-term track records. For our table, we ranked funds by the three-year average annual return. In first place: First Eagle SoGen Gold (SGGDX), a portfolio that topped the year-to-date, one-year, and five-year rankings as well. A caveat is the fund’s expense ratio. At 2.70% of assets, it exceeds the gold group’s average, although the fund has a track record that outshines the competition.
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Top Precious Metals Funds |
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| Fund Name (Ticker) | 1-Year Ann. Total Return* |
3-Year Ann. Total Return* |
5-Year Ann. Total Return* |
Toll-Free Number |
Minimum Initial Investment |
| First Eagle SoGen Gold (SGGDX) | 82.38% | 22.36% | 6.83% | 800-334-2143 | $1,000 |
| Tocqueville Gold (TGLDX) | 72.83 | 17.53 | N/A | 800-697-3863 | 1,000 |
| Gabelli Gold (GOLDX) | 68.33 | 16.49 | 3.25 | 800-422-3554 | 1,000 |
| Monterey OCM Gold (MNTGX) | 66.06 | 15.05 | 1.95 | 800-251-1970 | 1,000 |
| USAA Precious Metals & Minerals (USAGX) | 57.02 | 14.75 | 5.19 | 800-382-8722 | 3,000 |
| Evergreen Precious Metals A (EKWAX) | 51.97 | 12.99 | N/A | 800-343-2898 | 1,000 |
| Scudder Gold & Precious Metals S (SCGDX) | 42.66 | 12.59 | 1.01 | 800-621-1048 | 2,500 |
| Evergreen Precious Metals B (EKWBX) | 50.83 | 12.14 | 0.46 | 800-343-2898 | 1,000 |
| Evergreen Precious Metals C (EKWCX) | 50.91 | 12.13 | N/A | 800-343-2898 | 1,000 |
| Fidelity Select Gold (FSAGX) | 56.67 | 11.25 | 0.32 | 800-544-8888 | 2,500 |
| *AS OF SEPT. 30, 2002 SOURCE: MORNINGSTAR INC. |
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