The objective of the UIT Gold Developers & Producers Class is to achieve growth and to preserve capital by investing primarily in equity securities of gold developers and producers. The fund will invest in an approximately equally weighted portfolio of 20 to 25 companies that are listed on North American exchanges and engaged primarily in precious metals exploration, development or production. The Portfolio Advisor will select securities it believes have the potential to outperform the S&P/TSX Global Gold Index or any successor index.
|Net Asset Value (NAV)|
|Asset Class||Precious Metals Equity|
|Minimum Initial Investment||$10,000|
|Net Asset Value Pricing||Daily|
WHY INVEST IN THIS FUND?
The Portfolio Advisor believes that the global economic and political environment support an investment in gold equities:
- High sovereign debt to GDP ratios of many countries.
- Sluggish global economic recovery leading to new rounds of quantitative easing.
- Uncertainty caused by the recent BREXIT vote and the implications for weakness in the European Union.
- Concerns about sovereign debt defaults.
- Favourable precious metals operational environment due to slowdown in industrial metals.
- Lack of new mine supply makes existing deposits more sought after.
- Prolonged period of negative interest rates globally.
It is the Portfolio Advisors belief that since 2008 the global economic environment has and continues to experience significant currency turmoil. Many of the world’s countries have large budget deficits with no plan to return to a balanced budget. At the same time, persistently low economic growth has lead many central banks to “print” massive amounts of money (quantitative easing) in an attempt to stimulate their economies.
The Portfolio Advisor believes the fundamentals for investments in precious metals companies continue to be strong, especially during this time of uncertainty in the global economy. Driving the Portfolio Advisor’s view are the following factors related to the demand for precious metals equity investments as a safe haven.
Global Debt to GDP
Source: OECD Data
World GDP growth in 2016 continues to weaken while governments continue to provide stimulus and increase their national debt loads. In the United States, total public debt outstanding is over $18 trillion or about 125% of GDP as illustrated in the table above.
Printing money dilutes the value of each unit of currency, making currencies less and less valuable over time. Deficits and quantitative easing may help ease current issues but as the underlying problems become larger, the issues are simply being kicked further down the road for future generations to deal with.
The Portfolio Advisor believes that U.S. money supply (M2) growth over the last decade is the result of sustained central bank stimulus policies and an inability to reduce the U.S. Federal Reserve’s balance sheet. Over time, growth in M2 and gold prices have a high degree of positive correlation, 0.62. Sustained levels of central bank debt emphasize the fundamental strength to the investment thesis in gold.
After four years of working to rein in costs, the Portfolio Advisor believes that many producers are operating much more efficiently. The slow-down in base metals has also assisted the precious metals producers, as it has reduced mining input costs. With prices for steel, concrete, and copper all trending at the low end of their traditional price ranges, mining companies have been able to keep expenses under control.
In addition, the quality and pricing of available labour and related mine services have improved dramatically. It is now possible, for example, for a smaller gold developer to get a fixed price contact for a mine/mill build—something that would have been extremely difficult five years
ago. In the Portfolio Advisor’s view, the challenge in this environment is that the project pipeline for mines under development appears to be diminishing. In recent years, new production from new mines has declined. And cutbacks since 2013 and the focus on core assets puts pressure on the existing project pipeline, something the Portfolio Advisor believes adds to the value of producers.
Gold Price vs Global US Dollar Liquidity
Source: US Federal Reserve Bank of St. Louis, Dept. of Treasury, Federal Reserve Board
As a result, the Portfolio Advisor believes that with the gold price in the low $1,300 US range, and with costs under control, gold company margins and profitability are set to rise substantially, and will continue to push share prices up accordingly.
The following chart and table illustrate the composition of the fund’s portfolio in respect of the corporate name, exchange and security allocation on an indicative basis if the Portfolio had existed on August 31, 2015 (the “Indicative Portfolio”).
|CORPORATE NAME||EXCHANGE||WEIGHT||CORPORATE NAME||EXCHANGE||WEIGHT|
|AGNICO EAGLE MINES LTD||TSX||4.00%||NEWMARKET GOLD INC||TSX||4.00%|
|ARGONAUT GOLD INC||TSX||4.00%||NEWMONT MINING CORP||NYSE||4.00%|
|ATLANTIC GOLD CORP||TSX||4.00%||PREMIER GOLD MINES LTD||TSX||4.00%|
|BARRICK GOLD CORP||TSX||4.00%||PRETIUM RESOURCES INC||TSX||4.00%|
|BEAR CREEK MINING CORP||TSX||4.00%||RANGOLD RESOURCES LTD||NASDAQ||4.00%|
|BELO SUN MINING CORP||TSX||4.00%||RICHMONT MINES INC||TSX||4.00%|
|DALRADIAN RESOURCES INC||TSX||4.00%||ROXGOLD INC||TSX||4.00%|
|DETOUR GOLD CORP||TSX||4.00%||SABINA GOLD AND SILVER CORP||TSX||4.00%|
|ENDEAVOUR MINING CORP||TSX||4.00%||SEMAFO INC||TSX||4.00%|
|GOLDCORP INC||TSX||4.00%||TAHOE RESOURCES INC||TSX||4.00%|
|INTEGRA GOLD CORP||TSX||4.00%||TMAC RESOURCES INC||TSX||4.00%|
|KLONDEX MINES LTD||TSX||4.00%||TOREX GOLD RESOURCES INC||TSX||4.00%|
|LUNDIN GOLD INC||TSX||4.00%|
The information set out above is provided for illustrative purposes only. The portfolio may or may not include securities of issuers considered in compiling the foregoing analysis. The composition of the Portfolio may vary based on the Portfolio Manager’s assessment of market conditions and the availability of suitable securities and may differ from the Indicative Portfolio whose information is described above based on the Portfolio Managers assessment at the time of investment.
The fund is designed for an investor who views an investment in gold equities as a timely investment and who has a relatively short investment horizon of 18 to 24 months. This is because within 18 to 24 months, depending on the outlook of the Portfolio Advisor, the manager, Redwood Asset Management Inc., may propose a re-organization or transfer of assets of the fund to another fund managed by Redwood and advised by the Portfolio Advisor or a change to the fundamental investment objectives of the fund, subject to applicable law.
THIS FUND IS SUITABLE FOR INVESTORS WHO:
- Have a tolerance for high risk .
- Own, or plan to own, other types of investments to diversify their portfolio.
- Want exposure to the Canadian and U.S. equity markets.
- Believe that gold prices will go higher.
Disclaimer: Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rate of return is the historical annual compounded total return including changes in share value and reinvestment of all dividends or distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
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