I always like paying attention to Chris Mayer’s recommendations — not because they’re infallible, but because he has a solid and logical process for choosing stocks, and I’ve found his arguments pretty compelling the few times I’ve heard him speak (and, of course, some of those stocks he has profiled have done well — though surely not all of them).
There’s been a pretty big push on for Mayer’s newsletters lately, largely because he switched publishers and moved over to the Bonner & Partners side of the Agoraplex (Bill Bonner is one of the fathers of the US investment newsletter industry, and a founder of Agora, which itself owns or is affiliated with tons of other spun-off publishers like Stansberry, Money Map Press, Sovereign Society, Oxford Club, etc.).
So Mayer’s old Capital and Crisis, which he helmed for ten years or so, is no longer with us… but there are now two Chris Mayer services being flogged by the Bonner folks: Chris Mayer’s Focus, which is generally aimed at small and mid-cap “riskier” stocks, and Bonner Private Portfolio, which is the less-aggressive “real money” portfolio advisory for Bill Bonner’s money and the newsletter that’s being pitched here today. Both are high-priced letters, with “list price” generally around $3,000 (though pretty much all newsletters are always offered “on sale” — in this case, Bonner Private Portfolio is being pitched at $1,950).
The spiel in the ad, which comes from Bill Bonner’s son Will, is that this is a way to “finally” get a chance to invest alongside the Bonners in gold — here’s how he puts it:
“… for years now, we’ve left you largely in the dark about the one asset that our family – and especially my dad – cares about most.
“As you know, Dad’s been writing about gold for decades now, first in The Daily Reckoning and now in Diary of a Rogue Economist.
“He has made clear many times why gold is important, and why he thinks you should own it.
“Currently, our family has one-third of our trust in gold, in one form or another.
“We’ve held it for as long as I can remember… and plan on holding it for the rest of our lives.
“Yet we’ve never shared the specifics of our gold holdings with you, or any of my father’s readers.”
And if there’s one thing the Bonners know how to do really, really well, it’s sell newsletters — so this gap in their reporting is, naturally, an opportunity to sell access to what they’re calling an “elite gold portfolio”… here’s how Will describes that:
“Chris has created an elite gold portfolio to share with Bonner and Partner subscribers…
“One that’s appropriate for all types of investors, and safe enough that even we can invest in it with our family trust.
“It’s called the Bonner Family Gold Portfolio. It’ll be a very straightforward and transparent way for you to see exactly how our family is investing in gold… and invest in each position before we do.
“The asset allocation Chris has described for the portfolio matches what my dad has preached for years.
“Chris says a certain percentage will be in bullion… some in an exciting new recommendation he will announce in the next few days… and smaller amounts in a few other positions that he’s found, which I’ll discuss later.”
So what is that “exciting new recommendation he will announce in the next few days?” That, friends, is why I backed the Thinkolator out of the garage this morning… whether it’s exciting or not, we can’t stand not knowing.
Need to be tantalized further? Here’s a bit more:
“It’s an opportunity he says is perfect for long-term gold investors, and is something that every one of our readers should consider – even if you’re not a diehard ‘gold bug.’
“Based on Chris’s research, he says it could give you 100%-plus gains in the short term… and 400% gains or more over the next several years.”
OK, geez, so what the heck is it? Some kind of hot new junior mining stock that’s about to make a discovery? A glamorous royalty stock? One of the big miners? We need some clues!
Oh, wait, here they are:
“Chris’s New Gold Recommendation
“The investment opportunity I’ve found is not a mining stock… or a gold royalty company… or any of the flavor-of-the-month gold investments that typically surface after the gold price has shot up…
“It isn’t some ‘hot tip’ either…’
Dang it! Hot tips are way more fun. So it’s not a mining stock or a royalty company… and presumably it’s not some pre-discovery exploration stock because that wouldn’t fit the bill for being an investment that “every one of our readers should consider.”
Curioser and curioser. We need some more clues:
“It’s actually an investment that I’ve been tracking for a long time.
“It’s run by a Harvard grad who happens to be one of the most successful gold investors of the last several decades.
“Since inception in 1998, this investment has returned 11% annually – an exceptional feat, especially considering gold’s wild ride from $275 to over $1,800 and back down again over that time frame.
“In fact, every $10,000 invested back then would have grown into $60,900 today.
“By comparison, every $10,000 invested in the S&P 500 would be worth less than half that.
“And had you invested in the most widely-traded gold plays – like Barrick Gold, Newmont Mining, Kinross Gold and many others – you wouldn’t have made anywhere close to that… and would have lost money, in some cases.”
Aha, now that’s some meat for the Thinkolator to chew… so what is Mayer’s new gold recommendation?
It is almost certainly — hold on now, you are not allowed to throw bottles at your screen — a mutual fund.
And if it’s been around since 1998 and has made that kind of money over a long period of time, it’s not a closed-end fund or an ETF — there are only a couple closed-end funds that have been around that long, and they have not generated 400-500% returns since the late 1990s.
But a couple mutual funds have gotten close to that level of performance… and the Thinkolator says that the one Mayer is almost certainly recommending here is Tocqueville Gold (TGLDX).
Which is probably not the first gold mining mutual fund that comes to mind — that’s probably First Eagle, thanks to Jean-Marie Eveillard’s long history as a gold equity star — but it might be the second one that pops into your head.
And, yes, the clues fit — Tocqueville Gold did launch in 1998, and John Hathaway, who has been with the firm since just before the Gold fund launched and has been the manager or co-manager that entire time, did indeed graduate from Harvard… and an investment of $10,000 at inception would have turned into $60,000 or so, depending on which day you checked the number, which is roughly an 11% annualized return.
It’s not a particularly cheap mutual fund, with an annual expense ratio of 1.44%, but neither are most of the other top tier precious metals mutual funds — First Eagle Gold and Gabelli Gold and Tocqueville Gold are all fairly expensive, and have all tended to be pretty highly correlated with each other most of the time… and have all done better than the the miners index over most longer periods of time (as represented by the GDX ETF, at least over the past decade or so), mostly because they have positions both in physical gold (which has done much better than the big miners during downturns) and in smaller exploration and development companies who don’t rise to the top of the market cap-weighted indices.
The one notably less expensive mutual fund in the category that’s been around for a while, Vanguard’s Precious Metals and Mining, has been roughly in the middle of that pack over the past five years — but has been much less levered to gold on the big upswings in 2011 and in the first six months of this year, so over time it has lagged the more expensive precious metals mutual funds and put in a performance that’s much closer to the GDX. Probably, to a large degree, because the Vanguard fund has had a wider mandate over much of its life and invested much more outside the gold sector than the others have (including holdings like Potash Corp and BHP Billiton in decades past), and, perhaps, because these days it’s one of the few actively managed gold mining equity funds that has the largest gold miners like Newmont and Barrick in its top few holdings.
To some degree that’s probably splitting hairs and thinking too specifically about “past performance” as an indicator of future results — if gold goes up sharply then they’ll all do well, and you if you’re just skimming the returns over essentially random time periods any fund can look better or worse for a while without the distinction being all that important.
On average, clearly the wisest argument about mutual funds is the one you’ll hear from Vanguard: the one thing you can control is what you pay for an expense ratio, and over time the higher expense of actively-managed funds with strong long-term managers is not enough to help those funds outperform the indices. Except, I’d argue, sometimes managers are better than average for long periods of time and can be worth even a premium price… particularly if it’s something close to the realm of “reasonable.” (Reasonableness is in the eye of the beholder — Vanguard’s expense ratio is unimpeachably low at 0.35% a year, Van Eck International (INIYX) is at 1.1%, Gabelli Gold AAA (GOLDX) is at 1.62%, First Eagle Gold (SGGDX) is over 2% for most fund classes… most of these have several different fund classes, but those are generally the “low minimum” versions for retail investors that don’t require front-end “load” commissions. And since 1998, at least, Tocqueville Gold has beaten all of those — though there have been points when it lagged its peers over several-year periods as well.)
The latest fact sheet for Tocquevile Gold is here if you’d like to learn a little more — and Value Investor Insight also interviewed Hathaway a few months ago, so that’s worth checking out if you want to get a handle on his strategy and outlook.
I do like John Hathaway’s consistent value-investing strategy and the flexibility the fund has to go pretty heavily into both physical gold and smaller miners when opportunity presents itself — their largest two holdings now, totaling almost 18% of the fund, are Detour Gold and gold bullion… they’ve also got a couple royalty companies (Silver Wheaton and Franco-Nevada) some other relatively small players like Torex and Alamos Gold and Pan American Silver in the top holdings… only about half of the top ten overlaps with top ten holdings in the GDX miners index ETF, the only really big miners in the top ten holdings at Tocqueville Gold are Agnico-Eagle, Randgold, and Goldcorp.
So there’s no instant answer here — some people like actively managed mutual funds and are willing to pay for them, and there’s a case to be made that active management has clearly beaten passive indexes in the gold mining space over long periods of time. Tocqueville Gold is a good fund, better than many of its peers, and it’s not a terrible idea as a way to get exposure to gold equities through a proven manager at a reasonable (arguably) cost, though nor is it necessarily the kind of obscure, “secret” or “special” investment that some investors might expect from a newsletter that costs a couple thousand dollars a year and promises expert stock picking. But, of course, we didn’t pay $1,950 to learn about this idea, so we’re free to think about it dispassionately.
That’s my take on this pitch for the special entree into the “Bonner Family Gold Portfolio” pick about to be recommended by Chris Mayer… but it’s your money, of course, so it’s your opinion that counts — whaddya think? Want to pick your own miners? Think a mutual fund manager would do a better or worse job? Any other favorite money managers in the precious metals space you’d like to argue are stronger than John Hathaway? Let us know with a comment below.