U.S. Markets closed

4 Mutual Funds to Buy as Gold Hits 3-Month High

Swarup Gupta

Gold surged to its highest level in three months on Wednesday. The milestone occurred despite the fact that stocks are inching toward new records every other day. Also, the U.S. economies, as well as those across the world, have recorded significant improvements resulting in conditions quite unlike those in which the yellow metal gains popularity.

However, a number of factors, including the uncertainty over the policies of President Trump and political concerns in Europe are pushing up the prices of gold. Following these promising trends, investing in mutual funds investing in gold could be a profitable decision at this point.

Plunging Yields, Rising Inflation Push up Prices

The price of gold has gained nearly 7.5% this year and is currently at its highest point since Nov 10. The earlier increase was primarily due to the concerns surrounding Trump’s presidential victory. However, other factors have raised the popularity of the yellow metal. Bond yields have plunged across the world along with a spurt in inflation.

This is because unlike the current stance of the Federal Reserve, most central banks are employing accommodative monetary policy to spur growth. Such an approach sends interest rates lower and was, in the past, having little impact on prices of gold. However, inflation is rising now, pushing down the real rate of interest. Since the yield component of bonds has fallen or even turned negative, investors are opting to buy gold instead.   

Trump’s Actions Raise Uncertainty

Of course, the more obvious reason for gold’s recent popularity has been the surprise victory of Donald Trump. The administration’s pledge to protect U.S. industries and redefine currency relationships could lead to a trade war with dire consequences, eventually sparking a sell-off. In order to put “America First”, Trump may retreat from global trade sending exporter’s currency plummeting, curbing corporate revenues and destroying consumption. (Read: Fretting over Trump's Policies? 5 Safe Value Bets)

Additionally, political upheavals in Europe could also raise market volatility. Several major countries on the continent, including France are veering toward voting in governments with a nationalistic bent. This could destabilize the EU, resulting in a situation quite like the exit of Britain in June last year.

Buy These 4 Mutual Funds

Here, we have selected four mutual funds that have significant exposure to gold. Moreover, these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

These funds have encouraging three-month and year-to-date (YTD) returns and minimum initial investment is within $5000. Also, each of these funds has a low expense ratio.

Vanguard Precious Metals and Mining VGPMX seeks growth of capital over the long term. The fund invests the majority of its assets in the stocks of both domestic and foreign companies whose primary operations are regarding precious metals including gold. A maximum of 20% of its assets may be utilized to hold gold, silver or other precious metal in the form of bullion or coins.

The fund has three-month and YTD returns of 8.9% and 20.1%, respectively, and an expense ratio of 0.35% as compared to the category average of 1.43%. VGPMX has a Zacks Mutual Fund Rank #1. Further, as of the last filing, Agnico Eagle Mines, Hochschild Mining and EMC Corp were the top holdings for VGPMX.

Deutsche Gold & Precious Metals S SCGDX invests the lion’s share of its assets in common stocks and other equity securities of those companies which are primarily involved in activities involving gold and other precious metals. The fund may use a maximum of 20% of its assets to purchase top grade bonds of precious metals companies.

The fund has three-month and YTD returns of 5.3% and 19.5%, respectively, and an expense ratio of 1.00% as compared to the category average of 1.43%. SCGDX has a Zacks Mutual Fund Rank #2. Further, as of the last filing, Newmont Mining Corp, Barrick Gold Corp and Newcrest Mining Ltd were the top holdings for SCGDX.

Franklin Gold and Precious Metals Adv FGADX seeks capital growth with current income as a secondary objective. The fund invests the lion’s share of its assets in securities issued by companies whose primary operations are related to precious metals and gold. The fund invests in securities issued from across the world and usually invests in foreign companies.

The fund has three-month and YTD returns of 8.7% and 25.1%, respectively, and an expense ratio of 0.86% as compared to the category average of 1.43%. FGADX has a Zacks Mutual Fund Rank #2. Further, as of the last filing, B2gold Corp, Newcrest Mining Ltd and Anglogold Ashanti Ltd were the top holdings for FGADX.

American Century Global Gold BGEIX invests heavily in companies involved in the fabrication, processing, distribution and exploration of gold. The fund seeks to provide a combination of capital growth and dividends which is consistent with its investment objective.

The fund has three-month and YTD returns of 6.1% and 22.3%, respectively, and an expense ratio of 0.68% as compared to the category average of 1.43%. BGEIX has a Zacks Mutual Fund Rank #2. Further, as of the last filing, Newmont Mining Corp, Barrick Gold Corp and Agnico Eagle Mines Ltd were the top holdings for BGEIX.

Want key mutual fund info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Get Your Free (BGEIX): Fund Analysis Report
 
Get Your Free (FGADX): Fund Analysis Report
 
Get Your Free (SCGDX): Fund Analysis Report
 
Get Your Free (VGPMX): Fund Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research