Holly Black: Welcome to Morningstar. I'm Holly Black with me is Ned Naylor-Leyland, he's manager of the Merian Gold & Silver Fund. Hello.
Ned Naylor-Leyland: Good afternoon Holly.
Black: So, I'm guessing it kind of does what it says on the tin, but I'll ask anyway, what does the fund do?
Naylor-Leyland: So, the Merian Gold & Silver Fund is not really an index fund. It's more of a combination of physical metal, gold and silver and mining equities. So, we seek to combine four sub categories in one product to optimize an investor's outcome over a two to five-year timeframe.
Black: So, the way lots of investors I think, think about gold in their portfolio is it's kind of an insurance policy. So, it can go along doing an awful nothing for a long period of time, but when everything goes wrong, it kicks into action. And arguably, everything has just gone wrong. So, what's the kind of mix in your portfolio at the moment? How are you handling this environment?
Naylor-Leyland: Yeah, we have we have a bullish set up in the portfolio, we actually have two different models. One where we can be defensive, but now we are bullish, because our signal unsurprisingly is telling us that substantially higher prices are ahead. As a result, we're between 15%, 20% in physical and then more or less equally split, so 40% on each in gold and silver mining equities, which are operating in the Americas and Australia. So, we don't invest in Africa or Russia or Central Asia, we find those jurisdictions carry additional operating risk we're not comfortable with. But you are right at the moment people are, people are definitely lot more interested. I think that one of the keys here is the divergence between central bank gold positioning and the Street. I think the margin investors are waking up to the fact that this is something that central banks hold in very large quantities is in fact the zero-risk instrument of the system. And for decades and decades, the financial markets ignore that. And I think they're just starting to wake up again and remember this fundamental – very important fundamental truth.
Black: And I think a lot of investors would have got very excited in recent months because the gold price has soared. But even in that environment, does that mean the gold miners can get past the turmoil that's affecting so many other sectors?
Naylor-Leyland: Yeah, I mean the gold prices, I mean the gold price has soared in everything other than dollars. So, in dollars we reached the high that we were at eight, nine years ago. So, you are right there in Sterling and Euros, we are at fresh all-time highs. And the mining companies are finding the coronavirus environments be very patchy depending on where they are. So, companies in Mexico, for example, are currently under temporary shutdown, Australia no restrictions. All over the world there are different outcomes. These outcomes generally get priced into the stocks pretty quickly will be one thing I was certainly positive. But overall, it's been patchy, and it's been tricky, and I think it will continue. But the key here is that their operating environment beyond that is exceptionally bullish due to very very low energy prices. Weak commodity currencies, so you pay workers generally in the FX line in which you're, you're mining. So Aussie gold miners pay their workers in Aussie dollars and they sell physical in dollars so you have an FX tailwind there and also other components of mining, so equipment, people et cetera all deflating. So, it's a very positive environment over and above the obvious one to do with shutdowns which you brought up which of course is a bit patchy.
Black: So, with all that in mind what's the rest of the year look like for someone holding gold, has the price got further to go?
Naylor-Leyland: Well I'm not going to nail myself to a cross on that one. What I'll say to you generally is that when investors are worried about purchasing power of Sterling and Dollars in the future, which is where we are now and the reason that gold is going up. Generally, bull market cycles see good strong double-digit annual performance for gold. And generally, silver will do a multiple of that. Now silver has lagged this move as it often does, initially, as capital seeks out gold and the largest gold mines initially and then it tends to percolate down, you'll see an outperformance from silver. So I'm not willing to give you a price target, but I am willing to say that I would expect silver being quiet material capture through the rest of the course of this year and would be a bit of a nod to that, I suppose.
Black: Ned, thank you so much for your time. For Morningstar, I'm Holly Black.
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