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Lumps of gold
Gold in the portfolio: Since SKAGEN Focus started investing in Gold Fields at year-end, the share price has gained over 30 percent in local currency.

Gold Fields, one of the world's largest gold companies with an annual production of around 2.2 million ounces, is a classic SKAGEN investment; the portfolio managers have identified an interesting position that most other investors have missed.


Gold Fields is listed in South Africa, but most of the company's mines are located in Western Australia. They have a couple of mines in Ghana and Peru, but only one in South Africa. Despite this, Gold Fields is trading at the same valuation as its South African peers, and well below comparable gold producers in Australia.

South Africa's mining industry is plagued by a range of problems from high inflation, to bureaucracy to breaches in labour law and working environment. The situation in Australia is significantly better, however.

For Gold Fields, transparency, safety, renewable energy and a minimisation of carbon dioxide emissions and water consumption are key issues and the company has a high sustainability rating.*

"We believe the company is a classic example of an asset that has been wrongly defined by the market, is partly misunderstood and that deserves a far higher valuation," says portfolio manager of SKAGEN Focus Jonas Edholm.

"Gold Fields is to a lesser extent affected by the problems afflicting other South African companies, and a potential restructuring and listing in Australia could cause the share price to increase significantly."

One of the world's largest gold reserves

After a long period of troubles, Gold Fields' South African mine South Deep, which has one of the world's largest gold reserves of around 80 million ounces of gold, has increased production lately and exceeded (low) expectations.

At the time of writing, Gold Fields accounts for around three percent of the fund's portfolio. Since SKAGEN Focus started investing in the company at year-end, the share price has gained over 30 percent in local currency. At the same time, the fund has sold out of industrial metals (copper, zinc, manganese, etc.) after several years of strong performance. The mining companies First Quantum and South 32 are two such examples which contributed positively to the fund's performance last year.

Gold can provide portfolio protection

Gold is currently trading at around USD 1300 per ounce after reaching a record price of USD 1900 in 2011. In times of unrest, gold is an asset class that is perceived to be safe and easy to hold and transfer to cash. The asset class has also historically offered good protection against inflation. The downside is that a bar of gold does not generate interest or issue dividends. As such, gold is an interest rate sensitive asset that is most attractive when interest rates on bank accounts are low or at zero. An investment in a gold company like Gold Fields can be perceived as a counterweight to the other holdings in the portfolio. It benefits from the rise in gold price when there is unrest in the stock markets and geopolitical tension, like with North Korea at present.

"It is important to emphasise that our investment in Gold Fields is not based on a sharp rise in the gold price. When we initiated the position, we could observe a more than 50 percent upside in the share price based on the current price of gold. However, we appreciate the potentially more defensive characteristic it lends to the overall portfolio," says Jonas Edholm.

Interesting fact:

Gold can actually be likened to cryptocurrencies such as Bitcoin. Both gold and these currencies are in limited supply and are independent of country. However, while Bitcoin has risen a staggering 300 percent so far this year, as measured in USD, gold has enjoyed a more modest performance (up just over 10 percent since the start of the year).

* Dow Jones Sustainability Index (DJSI): Company Score 83%, Top 5 ranked mining company


Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on market developments, the fund manager's skill, the fund's risk profile and management fees. The return may become negative as a result of negative price developments.