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Three-year track record: Merian Gold & Silver

24 July 2019

In her monthly column for Professional Paraplanner, Juliet Schooling Latter, research director, FundCalibre,  looks at funds that have just passed or are approaching their three-year track record. This month she examines the Merian Gold & Silver

Gold has had a turbulent few years. Having peaked at almost $1,900 per ounce in 2011, bullion lost almost half its value over the next four years, bottoming at around $1,000 in November 2015. Since then it has been less volatile, but returns – particularly from gold mining companies – have been disappointing and gold funds have found themselves at the bottom of most performance tables for some time.

However, as geopolitical tensions have risen, trade wars escalated, and the Federal Reserve has become more dovish, the asset class has had something of a resurgence of late and the gold price hit a six year high towards the end of June – enjoying a rise of 8% over the month.

Launched in March 2016, Merian Gold & Silver is run by Ned Naylor-Leyland. Commenting on the recent rise, he said: “As the cash and bond market becomes nervous about the future purchasing power of US dollars, gold and silver prices look set to resume their secular bull run. In my view, it is looking very much like a considerably better second half to this year is ahead for monetary metals enthusiasts.”

Now, it’s natural for a manager to talk up their own book but I happen to agree. Risks are everywhere, the stock market bull run is more than a decade long and, should we have a turn-down, central banks really don’t have a lot of weapons with which to fight it.

Gold makes for a good diversifier in a wider portfolio – you don’t need to hold enough to fill a vault, just enough to protect against potential central bank policy mistakes.

A particular feature of the Merian Gold & Silver fund that I really like is that it invests in gold and silver bullion listed funds as well as gold and silver equities, and Ned will manage the mix, adjusting the relevant weightings according to his view of the world. If he is bullish, the fund will have more silver shares than gold shares and Ned will reduce the bullion weighting. In a more bearish scenario, the opposite is the case.

When it comes to researching the mining companies, Ned invests only in those operating in what are generally considered safe regions such as North America and Australia. And, if a company’s management does not have demonstrable track record of successful mine building or production, then he won’t invest. He looks for those that have quality company financials, project viability, management teams and growth potential. He also runs specific balance sheet stress filter to identify potential funding issues, as the sector is relatively capital intensive.

Another consideration more specific to this asset class are the prevailing foreign exchange rates in mining jurisdictions versus the US dollar selling prices for both gold and silver.

The current make up of the Merian Gold & Silver fund is around 17%* bullion and 82%* gold and silver mining equities. The total number of holdings is 45*.

*Source: Fund factsheet, 31 May 2019

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet’s views are her own and do not constitute financial advice.

Professional Paraplanner