Gold prices made a remarkable rebound at the start of this year after suffering heavily for years. Rising uncertainties and a low rate environment played major roles in boosting the price of this safe-haven commodity. Mutual funds investing in securities of gold mining companies also gained heavily from this encouraging scenario and returned over 100% in the year-to-date frame, according to Morningstar.
Though rise in speculation of a rate hike in September following robust jobs data had a negative impact on gold prices, the outlook for this commodity is bright. This continues to spur demand for gold. Thus investing in precious metals mutual funds may lead to further strong returns in the near future.
Investors Continue to Invest in Gold
Uncertainties gave a solid boost to gold, which is considered as one of the key safe-haven assets, during the first half of this year. Investors’ demand for gold surged to a record level of 1,064 tons in the January through June period, as per the World Gold Council. Increase in demand for the commodity led gold prices to climb 25% in the first half — the highest increase since 1980.
Moreover, Barclays’ estimates showed that commodity ETFs and similar products attracted $51 billion this year through July. This was "the strongest January to July performance since 2009…So far, 2016 is shaping up to be the best year ever for inflows to this type of product." The report highlighted: "Precious metals, and gold in particular, have been the most favored commodity sector." It showed that precious metals’ funds took in $28.8 billion during the period.
Factors Boosting Demand
The yellow metal’s bull run is a function of a combination of factors, notably the Fed’s decision to keep rates steady in its June meeting and a strong tailwind from Britain’s historic decision to leave the EU. Other factors have also contributed toward making mining stocks attractive. Given the downturn experienced over the last five years, in particular over 2015, gold mining companies had undertaken several cost-saving initiatives which have borne fruit. Gold miners are of course tied to gold prices and operationally their earnings will improve faster than the gold-price rally. (Read: 5 Gold Stocks to Buy Despite Strong Jobs Data)
Despite the rise in speculation of a rate hike in September, there are enough reasons for investors to opt for gold. The Bank of Japan and the central banks in Europe are opting for further monetary stimulus measures. Additionally, some degree of uncertainty continues to prevail over chances of a rate hike. Moreover, the U.S. Presidential election in November is speculated to aggravate uncertainty further, giving gold an added push.
4 Precious Metals Mutual Funds to Buy
Gold’s impressive performance this year and a favorable outlook for the near term signals that mutual funds investing in securities related to the commodity are still poised for solid returns. Hence, we have highlighted four gold-focused precious metals mutual funds that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
These funds have encouraging year-to-date and three-month returns. The minimum initial investment is within $5000. Also, these funds have favorable expense ratios and no sales loads.
American Century Global Gold Investor (BGEIX - Free Report) invests a bulk of its assets in securities of companies which are involved in mining, distributing, processing and exploration of gold. Annual expense ratio of 0.67% is significantly lower than the category average of 1.40%. This Mutual Fund Rank #1 product has year-to-date and three-month returns of 128.4% and 30.1%, respectively.
Deutsche Gold & Precious Metals S invests the lion’s share of its assets in common stocks and other equities of domestic and foreign companies, from the precious metals sector. Annual expense ratio of 1.00% is significantly lower than the category average of 1.40%. This Mutual Fund Rank #1 product has year-to-date and three-month returns of 118.8% and 28.9%, respectively.
Fidelity Select Gold (FSAGX - Free Report) normally invests more than 80% of assets in securities of companies, which are engaged in activities related to gold. Annual expense ratio of 0.93% is significantly lower than the category average of 1.40%. This Mutual Fund Rank #1 product has year-to-date and three-month returns of 112.2% and 27.7%, respectively.
Franklin Gold and Precious Metals Advisor (FGADX - Free Report) invests a major portion of its assets in companies from the gold and precious metals sector throughout the globe. Annual expense ratio of 0.96% is significantly lower than the category average of 1.40%. This Mutual Fund Rank #2 product has year-to-date and three-month returns of 123.8% and 31.1%, respectively.
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