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June 24, 2013

Commodity Precious Metals Funds and Precious Metals Equity Funds Take It on the Chin

by Ed Moisson.

For the week ended June 19, 2013, Lipper’s Commodities Precious Metals (CMP) Funds classification suffered its twelfth consecutive week of net outflows. Assets under management for this group declined from $103.7 billion at the top of the gold run on October 10, 2012, to $63.4 billion on Wednesday, June 19 (the group’s smallest amount since July 7, 2011). For 2012 investors injected slightly less than $9.0 billion net into CMP funds, while so far for 2013 they removed a net $19.0 billion. For the one-year period ended June 19, CMP Funds declined 12.94%, mitigating losses better than Dedicated Short-Bias Funds (-25.49%) and Precious Metals Equity (AU) Funds (-41.33%) over the same period.

Weekly Estimated Net Flows ($000) Versus Weekly Returns for Commodities Precious Metals Funds, One-Year Period Through June 19, 2013

Source: Lipper, a Thomson Reuters company

Source: Lipper

Gold miners stocks, a primary component of funds in the AU Funds classification, have really taken it on the chin for the one-year period just ended. Assets under management for this group have declined to $15.4 billion from $38.6 billion on September 7, 2011.

Understanding the differences between CMP Funds (funds that invest primarily in precious-metal commodity-linked derivative instruments or physicals) and AU Funds (funds that invest primarily in equity securities and non-equity-related instruments of the precious metals market, including investments in the mining, exploration, or distribution of gold and other precious metals) is very important. For the one-year period just ended, the performance difference between the two groups was considerable (-41.33% for AU Funds versus -12.94% for CMP Funds). While CMP fund returns are linked directly to underlying commodity prices, the returns for AU funds are linked to the profitability of the underlying firms in addition to the underlying prices of the commodities.

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