Smart Money Series: John Hathaway, Tocqueville Gold Fund

10-Year Average Annual Return of 19.29%, Beating Benchmark by 1,000 Basis Points



John Hathaway, Senior Managing Director at Tocqueville Asset Management (www.tocqueville.com), has the notable honor of being one of the very first institutional money managers a decade ago to have identified the ensuing gold bull market. Moreover, he is also one of the most eloquent commentators on the investment merits of gold.

Back in 1998, when gold was trading under US$ 300 and no one cared about the yellow metal (he says it was ‘the Rodney Dangerfield of investment ideas’), John Hathaway and Tocqueville Asset Management identified the significant, generational investment opportunity in gold, and since then, their investors have been well rewarded.

Over the past 10 years (through September 30^th), the Tocqueville Gold Fund (TGLDX), posted an amazing average annual return of 19.29 % per annum, besting the Philadelphia Gold & Silver Index (XAU) by more than 1,000 basis points, and beating the S&P 500 by a staggering 1,900 basis points. During that same time, the XAU returned 8.98% per annum, and the S&P returned -0.15%. Year-to-date through November 6^th, the fund is up an impressive 78%.

Investors who may not know John Hathaway, or who are new to gold investing, would be served well to read some of John’s writings. Anomalous Investments’ vintage favorites include, from November 2003, Numeraire to Saucisson?, and from November 2004, Beardsley Ruml’s Road to Ruin. A more recent piece (May 2009) is A Surplus of Gullibility. These essays, and others, can be found at: (http://www.tocqueville.com/brainstorms_archive.html)

Because of John’s vision, insight, and historical performance, AI reviews the holdings of the fund on a quarterly basis in search of small, undiscovered companies. Below is a snapshot of the holdings as of September 30, 2009.



Reviewing the holdings in the table above, a few items are particularly noteworthy:

• Gold bullion, in the form of coins, is the largest investment in the fund, with more than 10% of total assets.
• Royalty companies figure prominently, representing 3 out of the Top 10 holdings. These companies are Franco Nevada, Silver Wheaton and Royal Gold.

• Well-known, and widely-held ETFs, such as the SPDR Gold Trust (GLD), I Shares COMEX Gold Trust (IAU), Market Vectors Gold Miners ETF (GDX), and Power Shares DB Gold Fund (DGL) are noticeably absent.

• The well-known & highly successful Friedland family, Robert and Govind, are well represented in the portfolio. Holdings include Ivanhoe Mines, Ivanhoe Australia, GoviEx Uranium (private), Ivanhoe Nickel & Platinum (Ivanplats) and GoviEx IP Holdings.

In the smaller capitalization (junior) space, which is where AI focuses the majority of its time, a few items are also noteworthy.

• Romarco Minerals, which we began following more three years ago (May 2006), is a large holding in the Gold Fund at No. 22. Romarco, which is up more than 500% year-to-date in 2009 based on positive developments at its Haile Gold Mine project in South Carolina, was discovered by AI after having combed through SEC filings and seeing the company listed as a significant holding in the portfolios of two highly successful, institutional money managers. At that time, Romarco had a market capitalization of less than US$ 25 million. Today, its market capitalization is north of US$ 350 million.
• Advanced-stage development companies, with large in-ground resources, also figure prominently. These companies, which offer significant leverage to rising gold prices, include Osisko Mining, Andean Resources, Centamin Egypt, Comaplex Minerals, International Tower Hill and Detour Gold.

With the gold price touching US$ 1,100 per ounce earlier this week, gold is no longer the “laughable outcast of the investment community” as it was in 1998.

Mr. Hathaway notes in the last sentence of his May 2009 essay, “unless the macro economic outlook undergoes a miraculous change for the better, it would seem that the prospects for gold and gold mining shares remain excellent”.

AI agrees.

Disclosure: AI management own shares in Romarco Minerals and Allied Nevada.



Matthew T. Schroeder
www.anomalousinvestments.com



Matthew T. Schroeder is the President of Anomalous Investments, an independent, value-added advisory service focused on finding small, undiscovered Special Situations in the natural resources industry. Particular focus is on gold, silver, oil & gas and agriculture. He can be reached at matthew.schroeder@anomalousinvestments.com.

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