John Hathaway: I started the Tocqueville Gold Fund in June of 1998 and have been the lead portfolio manager since. Tocqueville Asset Management became the sub-adviser of the Falcon Gold Equity Fund and the Falcon Gold Equity UCITs Fund in the second half of 2012.
e-fundresearch: What is the current size of the fund?
John Hathaway: As of March 31, 2013, Tocqueville manages $2.4 billion USD in the Gold Equity strategy. For the Falcon Gold vehicles, there is over $200 million USD in assets under management.
e-fundresearch: Do you also manage other funds or mandates?
John Hathaway: I only manage the Gold Equity strategy, which is available in different investment vehicles offered by Tocqueville Asset Management or through our partners such as Falcon Private Bank.
e-fundresearch: How long have you been in the business as a fund manager?
John Hathaway: Since 1986
e-fundresearch: What are the main steps in your investment process and in which area is your competitive edge to add value to investors?
John Hathaway: Tocqueville Asset Management has a bottom-up approach to conducting research. Company-specific opinions are based on fundamental research and regular dialogue with company management. Traditionally, the best investment ideas have initiated from internal research, which is formed through the analysis of company reports, management meetings, on-site visits, and internal discussion.
The investment team has a strong internal research capability that seeks to identify companies undervalued by the market. The research process begins with a global screening of gold-mining and exploration companies. Companies that are based in politically unstable countries are excluded from the universe. The majority of mining companies are Canadian-based, thus the universe may be biased, but is not limited, to publically-traded Canadian securities. A review of the company’s geologic assets is undertaken to determine if management has the potential to increase corporate value in a significant way. Additionally, an important consideration is management’s strategy and ability to create value, and whether their approach makes sense and is sound.
Securities are then valued on a relative basis using a wide array of metrics such as cash flow and quantity or quality of resources. In addition to financial metrics, companies are evaluated on three key aspects of value creation: 1) a company’s strategy as executed by management; 2) value potential in corporate assets, such as geological, discovery and consolidation potential; and 3) capital structure, such as cash flow and capital requirements. Other factors which are also reviewed include the strength of the management team, political risk, and resource discovery upside.
The investable universe is comprised of gold and precious metals mining shares and bullion. The investment team typically invests in common stocks with initial holdings of 1% or less. Mature holdings ideally range between 2% and 6%. Position weights are not targeted on a mechanistic basis and position size is a result of the evolution of the specific company, fundamental developments, and analyst’s research findings. The approach taken to building or reducing position size is generally gradual. Securities may be sold if position limits are exceeded, points of over valuation are consistently exceeded, or as a result of fundamental disappointment.
As one of the world’s largest gold and precious metals investors, the investment team has an extensive network and access to geoscientists and engineers, mining industry consultants, bullion banks and bankers. The team is active in meeting with new prospective investments and continuing dialogue with a wide array of managements, attending more than 500 meetings a year and visiting 29 separate nations since 2003 to track investments and assess opportunities. The firm’s presence in this industry is well-known and Tocqueville believes that the team’s information flow and ability to process that flow is second to none within this framework.
e-fundresearch: Which benchmark is most relevant and how should investors compare the fund vs. benchmarks or peer groups?
John Hathaway: Although the strategy is not managed to a benchmark, the Philadelphia Gold and Silver Index (XAU) is used for performance comparison purposes. The XAU is a well-established index, with performance dating back to 1983, and is designed to track the performance of a set of companies involved in various phases of the gold and silver mining industry, on which the Gold Fund has focused. The portfolio is typically compared to other fund managers in the precious metals equity space.
e-fundresearch: 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?
John Hathaway: The U.S. Gold Fund has outperformed the XAU for the 5 year period ending December 31, 2012 on an annualized basis, returning 7.42% while the benchmark gained 0.24%. Net of fees performance for the last 5 calendar years versus the XAU is as follows:
e-fundresearch: What motivates you in your job?
John Hathaway: The macroeconomic issues concerning monetary debasement are the most important ones facing investors today. We are in uncharted waters, yet most investors seem either unaware or blasé in their acknowledgement. I believe the breakdown of the monetary system that lies ahead represents the profit making opportunity of a lifetime.