Midas Portfolio Manager, Tom Winmill, Featured in CBS News Article
Investors in gold have, essentially, three basic alternatives: (1) bullion; (2) individual equities; or (3) funds that invest in gold and gold-related equities (gold mutual funds, Exchange Traded Funds – ETFs, etc.).
Bullion or coins are a relatively conservative way to invest in gold. While investing in the physical metal may sound simple, it requires special considerations, such as having safe-keeping (custodial) arrangements to store the metal and determining the creditworthiness of the custodian. These considerations make bullion investing unrealistic for many investors.
Equities of gold mining companies offer greater leverage than direct ownership of the metal itself. The sensitivity of share prices to a hypothetical rise in metal price is related to the cash flow from current production and the valuation impact on proven and probable reserves. Excessive reliance on trading strategies to generate returns, however, can be expensive and tax-inefficient, as well as time consuming. Many who have tried to outsmart this market by hyperactive trading have under-performed. And, it requires substantial research, analysis, and continual monitoring.
Benefits of Gold as an Investment
Diversification — Gold belongs to a distinct asset class and may be an effective means of portfolio diversification.
Low Correlation — Gold typically has a low correlation with the overall U.S. equity markets (as measured by the S&P 500). Gold not only diversifies your portfolio but, when included with a portfolio of U.S. equities, may help dampen the volatility of the overall portfolio.
Hedge — Gold has traditionally acted as a hedge against financial assets. So, in uncertain times and in periods of high inflation, gold may act as an effective store of wealth.
Demand — Demand for gold is fueled by the jewelry industry, industrial demand, and by central banks worldwide.
Also see Gold Investing and Gold Funds
Investments such as gold mutual funds are managed by professionals who can assess the relative merits of investing in bullion and equities, do the necessary research, and continue to monitor the portfolio regularly.
Midas Discovery pursues gold investing by having at least 65% of its total assets in
(i) securities of companies primarily involved, directly or indirectly, in the business of mining, processing, fabricating, distributing or otherwise dealing in gold, silver, platinum or other natural resources (“Natural Resources Companies”) and
(ii) gold, silver and platinum bullion.
Up to 35% of the Fund’s assets may be invested in securities of companies that derive a portion of their gross revenues, directly or indirectly, from the business of mining, processing, fabricating, distributing or otherwise dealing in gold, silver, platinum or other natural resources, in securities of selected growth companies and fixed income securities of any issuers, including U.S. government securities.
Like many gold mutual funds, Midas Discovery may invest in domestic or foreign companies that have small, medium or large capitalizations and concentrates its investments by investing at least 25% of its total assets in Natural Resources Companies. Because gold mutual funds typically concentrate investments in smaller companies and foreign securities, with mining and exploration risks of precious metals, gold mutual funds are riskier and more speculative than general, diversified funds. Unlike some other gold mutual funds, in seeking to enhance returns, Midas Fund may use futures, options and short sales, and may use leverage.
Midas Discovery may engage in short selling up to 100%, although the Fund has no current intention of more than 40%, of its net assets, and it may engage in options and futures transactions subject to cover requirements (see “Cover for Options, Futures, and Forward Currency Contract Strategies” in the Statement of Additional Information (“SAI”) for more information). There is a risk that these transactions may reduce returns or increase volatility. In addition, derivatives, such as options and futures, can be illiquid and highly sensitive to changes in their underlying security, interest rate or index, and as a result can be highly volatile. A small investment in certain derivatives could have a potentially large impact on a Fund’s performance.
We believe that a reasonable allocation to a gold mutual fund in a conservative, diversified portfolio would be limited to 3% and up to 10% for aggressive investors.
Through gold investing, Midas Discovery seeks primarily capital appreciation and protection against inflation and, secondarily, current income. Midas Discovery owns securities of companies primarily involved, directly or indirectly, in the business of mining, processing, fabricating, distributing or otherwise dealing in gold, silver, platinum or other natural resources.
Successful gold investing depends on many factors. Chief factors considered by Midas Discovery's investment manager in gold investing, among other things, are the ore quality of metals mined by a company, a company’s mining, processing and fabricating costs and techniques, the quantity of a company’s unmined reserves, quality of management, and marketability of a company’s equity or debt securities. In gold investing, management emphasizes the potential for growth of the proposed investment, although it also may consider an investment’s income generating capacity as well.
In seeking capital appreciation or income from gold investing, Midas Discovery may sell an investment when the value or growth potential of the investment appears limited or exceeded by other investment opportunities, when an investment in the issuer no longer appears to meet the Fund’s investment objective, or when the Fund must meet redemptions.
Unlike some gold mutual funds, Midas Discovery may also invest in other natural resources companies, such as those involved in ferrous and non-ferrous metals (such as iron, aluminum and copper), strategic metals (such as uranium and titanium), hydrocarbons (such as coal, oil and natural gas), chemicals, forest products, real estate, food products and other basic commodities, if the investment manager deems them to have attractive investment characteristics.
When seeking to achieve its secondary objective of current income, Midas Discovery normally invests in fixed income securities of issuers with investment grade ratings. The Fund may invest in certain derivatives such as options, futures and forward currency contracts. The Fund also may engage in leverage by borrowing money for investment purposes. The Fund also may lend portfolio securities to other parties and may engage in short selling. Additionally, the Fund may invest in special situations such as restricted securities, liquidations and reorganizations, which might or might not involve gold investing. The Fund may, from time to time, under an adverse gold investing market or other conditions, take temporary defensive positions and invest some or all of its assets in cash and cash equivalents, money market securities of U.S. and foreign issuers, short term bonds, repurchase agreements, and convertible bonds. When the Fund takes such a temporary defensive position, it may not achieve its investment objective.
Most portfolios concentrate on gold-mining stocks, but some have significant exposure to silver, platinum, and base metal mining stocks as well. Precious metals companies are typically based in North America, Australia, or South Africa.” Midas Discovery, included in Morningstar’s group of gold funds, pursues gold investing by having at least 65% of its total assets in
(i) securities of companies primarily involved, directly or indirectly, in the business of mining, processing, fabricating, distributing or otherwise dealing in gold, silver, platinum or other natural resources (“Natural Resources Companies”) and
(ii) gold, silver and platinum bullion.
Up to 35% of the Fund’s assets may be invested in securities of companies that derive a portion of their gross revenues, directly or indirectly, from the business of mining, processing, fabricating, distributing or otherwise dealing in gold, silver, platinum or other natural resources, in securities of selected growth companies and fixed income securities of any issuers, including U.S. government securities.
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To learn more, we invite you to explore our web site or call 800-400-6432 to speak to a shareholder services representative. Thank you for investing with Midas!