Looks like some gold fund managers are as pessimistic as we are about the yellow metal. Many are hording much of the cash that performance chasing investors threw at them after gold fund's hot run of the last few years.
With gold headed back toward its highest level in decades, why are so many gold fund managers holding so much cash?
Take Frank Holmes, chief investment officer at U.S. Global Investors in San Antonio. His $250 million Gold Shares (USERX) held 16.4% in cash as of Dec. 31, while the $1 billion World Precious Minerals (UNWPX) had 14.5% of its assets in cash at year's end.
While it might seem like a fund with that much money on the sidelines would have missed out on gold's rally of 20% from its low of around $560 an ounce last October, Holmes says it has provided much needed flexibility.
"What happens is that when the stocks really get clobbered, I have the money to buy them," the fund manager says.
Another reason for big cash sake is that hot money fund investors are just as quick to turn tail when gold loses some luster. The manager of a fund inundated with hot money typically has to keep cash around to meet fast liquidations – otherwise the manager would have to sell fund investments which increases fund turnover and trading commissions and other costs. US Global Investors World Precious Minerals (UNWPX) fund currently has a hot money of 5 (the worst).
This needed cash cushion is one reason funds with high hot money ratings tend to under-perform going forward. Hot money in these funds in general is the main reason why our current category rating for precious metals funds is just 25 out of 100 (poor).
Some Gold Fund Managers Wary of Buying Gold
Looks like some gold fund managers are as pessimistic as we are about the yellow metal. Many are hording much of the cash that performance chasing investors threw at them after gold fund's hot run of the last few years.
With gold headed back toward its highest level in decades, why are so many gold fund managers holding so much cash?
Take Frank Holmes, chief investment officer at U.S. Global Investors in San Antonio. His $250 million Gold Shares (USERX) held 16.4% in cash as of Dec. 31, while the $1 billion World Precious Minerals (UNWPX) had 14.5% of its assets in cash at year's end.
While it might seem like a fund with that much money on the sidelines would have missed out on gold's rally of 20% from its low of around $560 an ounce last October, Holmes says it has provided much needed flexibility.
"What happens is that when the stocks really get clobbered, I have the money to buy them," the fund manager says.
Another reason for big cash sake is that hot money fund investors are just as quick to turn tail when gold loses some luster. The manager of a fund inundated with hot money typically has to keep cash around to meet fast liquidations – otherwise the manager would have to sell fund investments which increases fund turnover and trading commissions and other costs. US Global Investors World Precious Minerals (UNWPX) fund currently has a hot money of 5 (the worst).
This needed cash cushion is one reason funds with high hot money ratings tend to under-perform going forward. Hot money in these funds in general is the main reason why our current category rating for precious metals funds is just 25 out of 100 (poor).
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