Fund Focus: American Century Global Gold

Fund Focus:
American Century Global Gold

By Catherine Hetrick
InvesTech Research

       We're staying with our current strategy, which is to view gold investments as a defensive hedge and, as such, to maintain our current allocation at a conservative 3% of the portfolio. For stock investors, we still favor Newmont Mining, which is the world's largest gold producer. Mutual fund investors or those who want more diversification in the sector should consider our following featured investment...American Century Global Gold.
        In the alternate mutual fund portfolio, our gold investment is intended to be a proxy for the Newmont Mining (NEM) position held in the Model Portfolio. Our recommended gold stocks and mutual funds will typically be more volatile than the price of gold, but they should follow the same general trend. In a rising gold environment, we expect our gold investments to increase more than the price of gold, thus providing an adequate hedge, despite the fairly small allocation.
        In choosing a mutual fund alternative for Newmont Mining, our focus is on precious metals funds which invest entirely (or at least predominantly) in gold mining companies. American Century Global Gold (BGEIX, 800-345-2021) is our preferred proxy for Newmont Mining. It is one of the few pure gold funds in the category and one of our top gold fund recommendations for many years.
        American Century Global Gold began in 1988 and now manages over $550 million in assets. Since 1992, the fund has been managed by Bill Martin, giving him one of the longest tenures in the category. Mr. Martin works with co-manager Joseph Sterling, who has been a member of the Global Gold team since 1995. Both managers have been employed by American Century for over 15 years.
        The managers run a fairly concentrated portfolio of 62 stocks. The top 10 holdings comprise over 60% of the portfolio, and the two principal positions, Newmont Mining and Barrick Gold, represent 20%. The fund concentrates on larger capitalization gold stocks with over 85% of the portfolio in mid- to large-cap issues. Though smaller exploration stocks may rally more when gold prices increase, this fund should keep pace more with the broader gold market but with less volatility.
        Management is not constrained to investing in any one geographic region and typically holds companies from North America, Australia, and South Africa. Currently 80% of the stocks are foreign domiciled and 20% are domestic.
        The fund purchases only gold mining companies. Therefore, it often doesn't correlate well with others in the precious metals category which may own producers of industrial metals such as copper, nickel, aluminum, platinum and palladium. When analyzing the performance of BGEIX, the XAU Gold and Silver Index is a better benchmark than other funds in the precious metals category. Our graph showing the performance of the American Century fund vs. the XAU Index since gold stocks hit a multi-year low in November 2000. Over this time frame, BGEIX has handily outperformed this benchmark.
        In addition to its focus on gold investments, we like BGEIX because it is offered with no-load and boasts a very low expense ratio of only .68% - one of the lowest in the category. This mutual fund is traded without a transaction fee at most major brokerage houses, though there is an early redemption fee of 1% if sold within 60 days. It is very affordable with a minimum initial investment of only $2,500 for taxable accounts, and as low as $1,000 for tax-deferred and custodial accounts.
        If American Century Global Gold is not available at your brokerage, investors may substitute Fidelity Select Gold (FSAGX 800-343-3548). Note, however, that Fidelity Select Gold may hold other precious metals producers, like platinum and palladium, in addition to gold. Gabelli Gold (GOLDX 800-422-3554) is another essentially "pure gold" investment alternative.
        We continue to recommend Newmont Mining (NEM) as our primary gold company for those who invest in stocks. However, those preferring exchange-traded funds may use streetTRACKS Gold Shares, (GLD 866-320-4053), which invests in gold bullion and should be less volatile than precious metals funds and mining stocks because it tracks the price of gold.
        Editor's Note: Catherine Hetrick is editor of InvesTech Research Portfolio Strategy, 2472 Birch Glen, Whitefish, MT 59937, 1 year, 17 issues, $295.