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As at Nov. 12, the fund outperformed both the Morningstar Global Gold Growth Index and the Morningstar Precious Metals Category with a year-to-date return of 35.3%, compared to 20.7% for the index and 28.8% for the precious metals category.
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Cohen runs a concentrated portfolio for the $593.5-million (as at Nov. 12) Dynamic Precious Metals Fund, composed of between 20 and 30 names, with a strong bias to companies that “most investors have never heard of.”
“When we plot a Venn diagram of the stocks that the Precious Metals Fund owns alongside what’s in the TSX Global Gold Index, there are actually only seven stocks that overlap,” he said. “The remaining 23 companies that we own are not part of the index. So, we’re not tracking a benchmark.”
The stocks that do overlap include larger household names like Kinross Gold Corp., Agnico Eagle Mines Ltd. and Alamos Gold Inc. “We are very selective within the group of household names and are not going to own all of them. You just have to own a few good ones,” Cohen said.
Mining credentials
The Vancouver-born Cohen leads the Dynamic Metals & Mining team and also manages the Dynamic Strategic Gold Class and the Dynamic Strategic Resource Class. He got his feet wet in mining long before he became an investment professional. As a teenager he accompanied his father, who was a mining engineer and geologist, on visits to a Vancouver Island gold mine. It earned him on-the-ground experience and valuable insights into mining.
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After earning a degree in mining and mineral process engineering from the University of British Columbia in 1992, Cohen worked at copper and gold mines in Canada, Chile and Australia, including BHP’s Escondida — the world’s highest producing copper mine.
Cohen joined Dynamic (formerly Goodman & Co., which was then its management company) as a summer intern in 1996. He secured a full-time role in 1998, after completing a master of business administration degree at the University of British Columbia. “I haven’t updated my resume since,” he said. He obtained his chartered financial analyst designation in 2003.
When investing, Cohen looks for quality stocks in politically stable countries with transparent permitting processes like Canada, the U.S. and Australia. “We invest in countries we know and are confident that when we wake up one morning we wouldn’t find that the mining act has changed or that a super profit-sharing agreement with the government has been put in place,” he said. Effectively, “the outcome is known so you wouldn’t get caught with too many surprises.”
Cohen contends that another difference in his investment strategy is his focus on Australian-listed companies. The fund holds almost one third of its assets in stocks trading on the Australian Stock Exchange. He notes that Australia is currently the second most important market for gold stocks, behind the TSX.
“We really spend a lot of time looking for the best of the best opportunities in both markets,” he said.
When picking mining stocks, you need to have a good grasp of three technical areas of mining — ore grade, geology and mining and mineral processing, Cohen said. A fourth related must-have is a solid financial background. Cohen attributes the fund’s success to the team having all four necessary skill sets. “I’m a mining and mineral process engineer while my co-fund manager, Emily Griffiths, is a geologist,” he said. “We therefore have expertise in all three technical disciplines.” Both Cohen and Griffiths also have CFA designations.
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Being a mutual fund, “we will invest in more liquid stocks whenever possible but where we see really superior investment ideas is in the smaller-cap stocks, where we will make very targeted investments,” Cohen said. “We are not afraid of owning up to 10% of a public company, if we have a lot of confidence in it.”
Cohen said that one of the Precious Metals Fund’s great wins came three years ago. They started buying Great Bear Resources Ltd. at $1 a share. At the time, it had a book value of just over $3 per share. Dynamic’s funds, including the Precious Metals Fund, owned 13% of the company. Great Bear was purchased by Kinross for $29 a share in a $1.8-billion takeover. The funds also owned 20% of a spinco, Great Bear Royalties (after a 13% in specie distribution and subsequent purchases). A few months after the Great Bear transaction, Great Bear Royalties was sold to Royal Gold in a $200 million deal.
Another win was in gold explorer Founders Metals Inc. The fund did a first placement at 40 cents a share, then added to its position to own 15% of the company. The stock price as of Dec. 6 was $4.40, up 11-fold over the last year and a half.
Spartan Resources Ltd., the largest holding in the fund, is another winner. The fund made a placement in the Australian gold developer at around 44 cents a share just over a year ago. The stock traded at $1.58 of Dec. 6, representing a more than three-fold gain in one year.
Cohen and his team’s track record in uncovering hidden gems using their skills, experience and expertise is proof that they can beat the benchmark — regardless of the gold price — through stock selection, he said.
Investment Executive uses a points-based scoring system to rate Canadian mutual funds that have a minimum record of 10 years. Points are awarded for each year of positive annual returns as well as for relative outperformance and quartile rankings. IE also assesses cumulative 10-year returns, management expense ratios and volatility.
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