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"...If you need to chase 25% gains each year to get a good
night's sleep, then the City of London's got just the 'structured' gold fund
you might be looking for..."
WHY
MAKE SOMETHING SIMPLE when you can make it complex?
That way, you can get
investors to pay you 1.5% per year for the pleasure of over-complicating
their risks and potential...plus one-fifth of any gains they make on top!
"We believe that gold
and silver is the cheapest asset class at the moment and that the cost of
production has put a floor under the price," says Mark Mahaffey, a
former director at Bank of America and now co-manager of Hinde
Capital Ltd, a London-based precious metals fund.
"We are at a monetary
juncture so it is not only advisable to invest in gold – it is a
must," he adds. Hence the urgency in setting up the new Hinde Gold Fund in record-quick time.
Registered in the Virgin
Islands, this new gold-based hedge fund took less than three months to gain
approval from the City of London's
regulators, the Financial Services Authority. And charging 1.5% per year
– plus 20% of the gains made by those clients choosing to make the
minimum $100,000 investment – the Hinde Gold
Fund is certainly less expensive than some other hedge funds.
Launched
with $5 million of the management's own money at stake, it also requires only
one month's notice on withdrawals, and there is no lock-up period for new
investors either.
What's more, it also
applies what's known in the industry as a "high water mark". Every
time the fund makes a new high, you'll only pay that 20% performance fee on
gains made above and beyond that level. If it slips back, the managers will
make do with their 1.5% annual charge.
So far, so revolutionary!
But besides buying gold on behalf of Hinde's
investors, what will the fund do for its customers that...well...that Buying Gold alone will not?
"The startup will also use 'plain vanilla' derivative strategy
to enhance performance," says HedgeFund.net...
"The fund employs a
macro environment analysis [plus] a fundamental and model approach,"
adds FINalternatives...
A final technical and
sentiment model will "further refine allocations and entry and exit
points for each trade," adds a brokerage document released to
journalists.
Something on the edge of
rocket science, in other words, will enable the fund to offer
"smoothed-out volatility in the gold sector," claims the fund's
other manager, Ben Davies. Formerly head of trading at RBC Greenwich Capital,
he says "we want to give people the opportunity to invest but sleep well
at night.
"We will invest in
bullion but also in equities and the derivatives [because]
what people need is a structured and well managed way to re-allocate into
gold."
But is a
"structured" product really what investors moving into the Gold Market need?
Sleeping well at night, as
far as Hinde are concerned, mean an annual
performance of target of 20-25% total returns.
Anyone simple-minded enough
to just Buy Gold and hold it, on the other hand, made average gains
of nearly 13.5% per year (before costs) between New Year's Eve 1999 and the
start of 2007. They've also suffered volatility twice as great as that
delivered by the S&P index on a weekly basis, too.
So Hinde
hope to pretty much double the average return on Gold Bullion Investing seen so far in
this bull market, while cutting out the short-term dips. How? The stated plan
is to go long of those gold-related assets they think are going up, as Davies
told Global Money Management
magazine at the start of November...and to sell short those assets –
such as gold bullion itself and mining stocks – when they're about to
take a bath.
Either that, or Hinde are secretly hoping gold will just keep repeating
the gains seen in 2007 to date...now pushing 25% for anyone buying with US
Dollars on the first trading day of January.
Holding the S&P index,
by contrast, would have returned less than 2.0% annually since the start of
2000. So far in 2007 it's delivered 3.5%, even after reaching new all-time
highs in the summer. And again, these figures – whilst excluding
dividends, just like most tracker funds – also come before costs, now
slashed to just 0.07% per year if you put $100,000 or more into Fidelity's
FSMKX tracker. (Compare that to the annual management fees of 1% plus
regularly charged by mutual-fund index trackers as the Dot Com Dump turned
into a crash!)
Glancing at the outlook for
the S&P vs. gold here at BullionVault today, we can't
fault the logic behind Hinde's big, noisy launch.
"We are all waking up to the idea that the
government has been able to erode the purchasing value of currencies,"
Ben Davies told Hedge World at the
end of last month.
"Our premise on the
macro side is that it wasn't until 2003 that exploration in the mining
industry got kick-started" – so any meaningful growth in mining
output will take until 2014 to come online.
New gold deposits also tend
to sit in unstable or inhospitable parts of the world. Gold mines in
established fields, meantime, have to be dug deeper, all the way down to 4 kilometers
and more in South Africa.
And all the while, growing pressure from the environmental lobby is adding to
costs, hassle and over-runs.
Yes, gold's looking good
from here – not least because
everything else is starting to smell so bad! But where we do part company
with Hinde's views, however, is how private
investors might want to take best advantage of whatever gains in gold are yet
to come.
Simply Buying Gold – that
simplest of assets...a mere lump of metal that's becoming increasingly
valuable as investors walk away from securitized and structured products
– has delivered a series of strong, solid annual gains so far in this
bull market.
Of course, "past
performance is no guide to the future" as Hinde's
government-run regulators in London
like to remind potential investors whenever the City's about to close a sale.
But if you cut your Gold Dealing costs to a minimum – and you pay
wholesale rates for secure storage, with insurance included, so you don't
have to put up with the hassle of taking gold into your physical possession
– then the performance of gold is all you will need worry about.
The chances of, say, a
well-paid hedge fund manager mistaking a big move in gold...going short when
it's about to surge, or even gearing up with call options just before it
takes a dip...won't need to keep you awake at night.
It really is that simple.
By : Adrian Ash
Head of Research
Bullionvault.com
City
correspondent for The Daily Reckoning in London,
Adrian Ash
is head of research at www.BullionVault.com
– giving you direct access to investment gold, vaulted
in Zurich, on
$3 spreads and 0.8% dealing fees.
Current gold price, no delay | FAQ | Detailed outlook for 2007
Please
Note: This
article is to inform your thinking, not lead it. Only you can decide the best
place for your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on
it.
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