Gold as Portfolio Insurance - nafrottawa.comHow Royalty Streaming Companies work •Similar to...
Transcript of Gold as Portfolio Insurance - nafrottawa.comHow Royalty Streaming Companies work •Similar to...
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Gold as Portfolio Insurance September, 2020
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Disclaimer
• Nothing in this presentation should be considered as advice or recommendation
• The author has no opinion as to the future direction of stock, commodity or foreign exchange markets, including gold.
• All investing involves risk
• Readers should seek the advice of a registered financial/investment adviser or conduct their own due diligence before making any investment
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Acknowledgements
• NAFR Ottawa, Linda Barber, for organizing and sponsoring the webinars
• Michael Patenaude, Ottawa Share Club for the excellent graphs
• Frank Schilder for acting as Zoom Master
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Why we buy insurance:
• Life insurance, despite the fact that we don’t expect to die within the span of most term policies, and we want to protect our family’s wealth.
• House insurance, despite the fact that we don’t expect our house to burn down, and we want to avoid catastrophic loss.
• Car insurance, despite the fact that we don’t expect to cause an accident, and we want to avoid catastrophic loss.
• Portfolio insurance, because we don’t know what the future holds and we want to avoid catastrophic loss and protect our family’s wealth.
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Why gold could be considered for your portfolio
• Gold often does best when most other investments do worst • Negative Beta
• Recessions = low interest rates, when gold does well
• Central banks printing money debase the confidence in fiat currencies
• Top investment strategists recommend having a position in gold • Rosenberg
• Dalio
• Pape
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Poll question 1
• Looking forward 2 years, I predict that the Canadian economy will:
• 1. Improve
• 2. Decline
• 3. Stay about where it is now
• 4. I’m moving to Bora Bora
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Canadian economy entering “unknowable times” Stephen Poloz, Former Governor, Bank of Canada, May, 2020
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“Those who cannot remember the past are condemned to repeat it.”
George Santayana,
1863-1952
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Gold compared to the S&P 500
1990 – gold flat, S&P 500 up
2001 recession – $300-$700
2008-09 recession – $700 - $1895
2012 – gold falls, S&P 500 at 2007 level
2019 – gold rises with negative real interest rates $1100-$1400
2020 – gold rises 20% in CAD as Covid 19 hits
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Gold Bullion versus S&P 500 Negative Beta
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Poll question 2
• Over the past 20 years, which increased in price by 550% ?
• 1. Gold Bullion in US$
• 2. The S&P 500
• 3. The TSX 250
• 4. My Ottawa house taxes
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Gold price reacts to declining interest rates
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Gold reacts positively to rising LT bond prices
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Buffet buys US$550 million of gold miner Barrick
• “Buffett’s move into Barrick … is more about a bet on nominal interest rates staying ultra-low and real interest rates… going more negative, and there is no asset class that benefits as much from that than physical gold and the gold mining stocks”.
• David Rosenberg, September 11, 2020
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They ain’t making a lot more gold
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International Central Banks have been buying (World Gold Council)
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Recent gold investment performance Total Return including reinvested dividends
• Bullion ETF: CGL.C in CAD
• Franco Nevada: Royalty stream business - like a managed ETF
• Gold miners’ index ETF: XGD
Investment 1 Year % 5 Years %
Bullion CGL.C 29 70
Franco Nevada
58 279
XGD ETF 60 223
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A portfolio of gold miners has positive beta of 2.2 to gold
• Beta measures the responsiveness of a stock's price to changes in the overall market – gold in this case.
• But what goes up twice as fast can also come down twice as fast
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Gold bullion vs XGD vs FNV – one year
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Gold bullion vs XGD vs FNV – 5 years
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Why gold miners outperform bullion in up markets by 2.2 times
• Barrick’s all in cost to produce an ounce of gold: $950
• Profit at $1950 gold: $1000
• Profit at $2500 gold: $1550
• Per cent increase in profit: 55%
• Per cent increase in price of gold: 28%
• BUT in bear markets, most decline at the same multiple
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How Royalty Streaming Companies work
• Similar to Venture Capital firms, but for mines/energy. • They receive a small % of each ounce of gold produced, based on their original
investment
• Royalty Streamers have no operational cost risk and are highly diversified • FNV has 57 active royalty streams, and 200 investments in the pipeline
• If gold goes up, they reap 100% of the increase as profit
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FNV versus XIC and VUN – 6 years
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Percentage of gold miners in TSX 250
Materials make up 14% of TSX
About one half of that is gold
The 5 largest gold miners in the TSX:
Barrick
Franco Nevada
Goldcorp
Agnico Eagle
Kinross
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Conclusions 1
• Gold often increases in value when:
• Real interest rates are negative (as they were in 2019 and early 2020)
• Recessions hurt the value of other investments (negative co-variance)
• Investors search for safety
• Central Banks print too much money (“The Fed can’t print gold”)
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Conclusions 2
• The supply of new gold is finite – no new large mines in 10 years
• Royalty stream companies like FNV have outperformed bullion and the gold miner’s index
• One example of the benefit of active management
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Poll Question 3
• Should gold constitute at least 5% of everyone’s portfolio today?
• 1. No
• 2. I’m on my way to the Royal Canadian Mint on Sussex Drive to load up the car
• 3. I’m still waiting to be convinced
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Disclosure
• The presenter and/or his family hold the following units discussed in this presentation:
• FNV Franco Nevada
• XGD IShares Global Gold Miners ETF
• TLT IShares 20+ Year Treasury ETF
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Questions ?
Facts versus Opinions
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Gold Bullion versus S&P 500
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Next Webinars
• October 7 Bonds and Preferred shares can still make money
• October 21 One Decision Investment Portfolios
• November 25 How to select a financial adviser
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