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Searching for successful gold mines

Joseph Foster has more than 16 years experience as an investment manager as well as another 14 years as a geologist. The manager of the Lombard Odier World Gold Expertise Fund provides detailed insights into his investment philosophy and analyses the competitive edge of his fund. Managers | 04.04.2013 02:00 Uhr
Joseph Foster, fund manager of the Lombard Odier World Gold Expertise Fund
Joseph Foster, fund manager of the Lombard Odier World Gold Expertise Fund
e-fundresearch.com: Mr. Joseph Foster you are the fund manager of the Lombard Odier World Gold Expertise Fund (ISIN: LU0357534519). When did you take over the responsibility of managing this fund?

Joseph Foster: The Lombard Odier World Gold Expertise Fund was launched in 2003 as a multi-manager fund. We were one of four managers at that time. In 2011, Lombard Odier made Van Eck the sole manager of the fund.

e-fundresearch.com: What is the current size of the fund?  

Joseph Foster: Approximately US $258 million as of February 28, 2013.

e-fundresearch.com: Do you also manage other funds or mandates?

Joseph Foster: Yes, Van Eck has four other long-only gold funds that are managed similarly to the World Gold Expertise Fund. Our flagship fund is the Van Eck International Investors Gold Fund. It was the first gold mutual fund in the US, launched in 1968. Van Eck also manages three other gold funds for institutional clients.

e-fundresearch.com: What is the total amount of assets you manage currently?

Joseph Foster: US $1.38 billion as of February 28, 2013. e-fundresearch.com: How long have you been in the business as a fund manager?

Joseph Foster: I started with Van Eck in 1996 as a gold equity analyst. I began managing the International Investors Gold Fund in 1998, 14 years ago. Prior to Van Eck I was employed as a geologist mainly in gold exploration and mining in the Western US.

e-fundresearch.com: What are the main steps in your investment process and in which area is your competitive edge to add value to investors?

Joseph Foster: The first step is modelling the companies. We maintain detailed models that analyze companies mine-by-mine in order to gain a deep understanding of the companies and to generate a valuation of the stocks. My investment team follows news flows and meets with company management to evaluate their plans and ability to execute. We also travel to see gold properties world-wide.

All investment decisions take into account common risks associated with mining including geological, metallurgical, engineering, infrastructure requirements and environmental risks. I evaluate a country’s friendliness toward mining by monitoring political activity, track records, regulatory requirements, party affiliations of people in power, past social unrest and the potential for future unrest. The assessment of country and political risks is a significant part of the due diligence of my investment team. My team (as well the hard assets and emerging markets investment teams) frequently travel around the world visiting portfolio companies and prospects in their countries. When we are visiting these countries, we spend a significant amount of time evaluating the political and country risks. If the political and country risks are above our acceptance levels, we avoid investments in that region.

The gold industry is subject to political, operational, and financial risk. My investment team analyses each mine, tracks on- and off- balance sheet activities and monitors political and economic events in countries in which the mines operate. Rising risk levels could potentially lead to a reduction of positions in a country and ultimately in a complete avoidance of investments in that country.

I believe our competitive edge comes from our experience and understanding of the industry. I have explored in search of gold, discovered new gold reserves, and have been involved in both the development and mining of gold.  I believe this gives us an advantage in picking stocks. We have established ourselves as one of the most experienced players in the gold mining space, which is of particular importance in our current economic climate. Van Eck is one of the few firms where experience has passed through the family, from John van Eck to Jan van Eck, and from Portfolio Manager to Portfolio Manager. This was enabled through the Firm’s extremely low staff turnover.

As previously mentioned, I have over 14 years of experience as a geologist and some 16 years as an investment manager, which has helped me to develop an extraordinary understanding of mine plans, property synergies and the challenges these mines face. Also, during my years as an exploration geologist, I evaluated exploration and development projects which provided me with an edge in identifying takeover targets in the industry. There are only a small number of industry portfolio managers/analysts with comparable backgrounds. Many experienced geologists changed jobs in the 80s/90s or have since retired

All members of the gold investment team – myself, Imaru Casanova and Charl Malan – are also part of the deep, experienced 13 person hard assets team managing $7.4billion as of February 28, 2013, which is part of an overall 33 person investment team with significant additional experience (e.g. in emerging markets) and resources.

My team (as well the hard assets and emerging markets investment teams) are frequently meeting with a large number of companies (approx. 250 meetings a year), either at their own offices or on location around the world, from China to Colombia. We believe that there is no substitute for on-site meetings. This is a people business. With our experience in the gold mining industry we believe we have been able to build relationships and develop a strong knowledge of who you can trust.
Van Eck has long been considered a thought leader and pioneer in the gold-related investment space, with a track record of managing gold investment funds dating back to 1968.  A competitive advantage of the Firm is its ability to invest in companies soon after their first findings. Early on, Van Eck gained familiarity with these organizations and created the confidence to increase its positions significantly over time.

The Firm runs actively managed funds that invest in gold stocks. In addition, it manages the two largest gold mining ETFs in the world. As of February 28, 2013, Van Eck managed approximately $10.7 billion in gold equities between its active and passively managed funds. Van Eck, on behalf of its clients, is one of the largest shareholders in many gold mining companies in the world. This gives Van Eck attention from these companies and may make it easier, for example, to get access to their senior management and operational staff.

The smaller size of Van Eck’s active business (ca. $2 billion) enables it to invest significantly in small- and mid-cap companies. We believe its expertise in implementing an all cap approach gives it the opportunity to select companies it considers to exhibit the most promising risk/return profile.

e-fundresearch.com: Which benchmark is most relevant and how should investors compare the fund vs. benchmarks or peer groups?

Joseph Foster: The Fund’s performances are measured against the FTSE Gold Mines Index. The FTSE Gold Mines Index encompasses all gold mining companies that have a sustainable, attributable gold production of at least 300,000 ounces a year and that derive 49% or more of their revenue from mined gold. Van Eck chose this particular Index as it is a widely recognized, geographically diversified and easily investable benchmark. However, that being said, the portfolio generally bears little resemblance to the benchmark given the investment team’s strategy for seeking to capture alpha via inefficiencies in the market. Van Eck constructs the portfolio from the bottom-up based on the companies that, in its opinion, offer the best value and/or growth prospects and those that, it believes, will outperform in their forecasted gold price environment. Van Eck views the indices as a somewhat arbitrary collection of companies, and does not attempt to emulate them in any way. Van Eck’s long experience shows that using these methods have enabled its funds to consistently equal or outperform the benchmark.

The Fund’s benchmark tends to have a bias to large-cap stocks, whereas Van Eck’s stock selection uses fundamental analysis that often identifies opportunities outside of the benchmark’s universe. As a result, the Fund may have higher weightings in mid-tier to small-cap stocks than the benchmark. Non-benchmark stocks have a similar risk impact and higher expected return. There is no maximum deviation limit against the benchmark with regards to stocks, sectors or countries.

e-fundresearch.com: Which performance did you achieve for the fund YTD and over the past five calendar years in absolute terms and relative to relevant benchmark or other reference indices?

Joseph Foster: So far this year (through March 14, 2013) the fund is performing in-line with the benchmark, as each are down just over 17%. For the five years ending December 31, 2012 the benchmark declined 4.7%, while the fund was up 16.3%.
Click on image to enlarge!
Click on image to enlarge!

e-fundresearch.com: What motivates you in your job?

Joseph Foster: There are several things that make it easy to come to work each day. Hundreds of companies are out there exploring for gold, but few are successful. I enjoy searching for the next successful gold mine. Travelling the world to see mining operations and exploration sites is exciting. Also, I believe these are times when gold has an important role to play as an investment, so I enjoy meeting people who are interested in our funds.

e-fundresearch.com: Which other profession would you have considered apart from becoming a fund manager?

Joseph Foster: Following 14 years as a geologist, this is my second career. Few people are lucky enough to have two successful careers in one lifetime.  I can’t imagine doing anything else.

e-fundresearch.com: Many Thanks!

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