For investors looking to own gold, the biggest dilemma has always been which one to buy: equities or bullion?
Over the past couple of decades, those asset classes have taken turns outperforming each other, sometimes by drastic amounts, and they offer totally different levels of volatility.
Dynamic Funds has a solution: combine the two and run with whatever looks best at a given time.
The company is launching the Dynamic Strategic Gold Class Fund, which will invest in a combination of gold equities and gold bullion. It has a mandate to dramatically shift its holdings between the two depending on market conditions.
The idea for it came from Martin Murenbeeld, chief economist at DundeeWealth (which includes Dynamic) and one of the world's top authorities on gold. He wanted to create a low-risk way to play the highly volatile sector.
"What I wanted for some time is a gold fund that wouldn't scare the average person with volatility, a fund that I would be comfortable advising my mother to invest in as part of an overall portfolio," he said.
Traditionally, the low-risk way to own gold is to buy gold bullion (possibly through an exchange-traded fund or one of the myriad gold bullion funds) rather than the more volatile equities.
But Mr. Murenbeeld was never thrilled with these "sterile" investments, because history shows that equities usually outperform bullion. "You are potentially leaving quite a lot on the table," he said.
This fund's weighting will be determined by Mr. Murenbeeld's own modeling. If his model suggests that gold stocks have become undervalued relative to bullion (as it did early this year), the fund could move to a weighting of as much as 70% in stocks. The opposite would hold if stocks shift into a bear market.
"If there is a strong directional change [towards bullion or stocks], we'll let things ride a little bit," said Dynamic fund manager Robert Cohen, who will manage the fund.
"The primary goal of this fund is to beat gold bullion."
Gold prices have more than tripled since their lows in 2000. And for most of that period, shares of gold mining companies did even better; the HUI gold stock index is up about 800% in the same period.
But that was not the case for most of 2007 and 2008. The equities underperformed in those years, as the credit crisis took hold and investors worried about the ability of gold miners to raise production and keep costs in check.
This year, the equities turned around and are once again beating bullion.
Dynamic hopes that its fund will adjust to all these shifts.
"It's a little more risky than owning gold bullion, but we think we have the ability to juice it with the returns of stocks, and also moderating it according to how we see the market," Mr. Cohen said.
He also defended the fund as a better deal than the recently-launched Claymore gold bullion fund, a brokered IPO that handed huge fees over to the underwriters. This is a standard mutual fund with a 2% management fee.
