#188. Precious Metals Unit Trust Fund 2

Find Out Why This Unit Trust Fund Made 150.19% Profit While Gold Price Only Moved 31%

In the last article, you were introduced to Precious Metals Unit Trust Fund. A little gem that has made 150% in less than a year!

This article will elaborate more on the fund.

Compare these two investment products:

Buy date - 28 October 2008
Sell date - 9 October 2009

A. Public Bank Gold Investment Account = 31%

B. Precious Metals Unit Trust Fund = 150.19%

1. I bought 'gold' from Public Bank Gold Investment Account on 28 October 2008 for RM86.03 per gram. On 9 October 2009, it was sold (Bank's buying price) for RM112.75. This translates to a 31% profit for anyone who has hold the investment for that long.

2. For the same period, this Precious Metals Unit Trust Fund has shown a profit of 150.19%!

The reason I choose 28 October 2008 is because gold price was at around the lowest in terms of USD. The fact is, gold bottomed to 2008 year's low at USD712.50.


Why Has This Precious Metals Unit Trust Fund Outperformed Gold Price?

Imagine that you are a gold miner. The current gold price is at USD1,000 per ounce. Meanwhile your cost of production for each ounce is USD600. That gives your gold mining company a gross profit margin of 40% or USD400.

What happens when the gold price increase to USD2,000 in two years due to various reasons? And say the cost of mining has only increase 20% during those two years. Your cost will jump from USD600 (plus 20%) to USD720. Meanwhile, your gross profit margin will now increase much more. Profit would have jumped from USD400 to USD1,280 (USD2,000 minus USD720). Profit has jumped from 40% to 220%!!

Well, would you invest directly in physical gold or the companies that produce the physical gold?

Think about this, who is richer? The house developer sells you a house for RM500,000 whereby his cost is only RM250,000. He instantly made RM250,000 profit. Meanwhile, you as a property investor buys the house and waits for 2 years and then sell it for RM600,000. You made only RM100,000 after two years.

Two years later, the house market value becomes RM600,000 and the cost of building the house becomes RM300,000. The developer launches new phase and make a profit of RM300,000 on each house. The developer's profit has grown from RM250,000 to RM300,000 per house.

The point I am trying to reach is that the end-buyer such as us always get a lousier deal. To get a better deal we need to go to the source. For example, it would cost you cheaper to buy a piece of land, and build your own house. Buy your own materials, get your own labourers to build the house.

Transferring this concept to investment, it means we don't buy the end-product of gold commodity. Instead, buy the stocks of the companies that produce gold.

This is the concept that I talked about in #179 - Philosophy of Investment 2, achieving straigthforwardness and simplicity. When we shop, don't we want to cut away all the middlemen and reach to the wholesaler to get the cheapest deal?

Let's move on to the Unit Trust Fund, AmPrecious Metals.


What Is AmPrecious Metals?

From the Fund Fact Sheet, you can see:

AmPrecious Metals is a feeder fund (Islamic Global Equity Growth) that invest into DWS Noor Precious Metals Securities Fund. Objective of the Fund is to achievecapital appreciation by investing in a portfolio of global Shariah observant equity and equity-related securities of companies engaged in activities related to gold, silver,platinum or other precious metals.

It is meant for those who want to invest in gold, silver, platinum and other precious metals equities, and their related equities

These are the companies the fund invests in:

Gold Fields Ltd
Kinross Gold Corp.
Barrick Gold Corp.
Eldorado Gold Corp.
Yamana Gold Inc.
Lihir Gold Ltd.
Red Back Mng Inc.
Silver Wheaton Corp.
Compania De Minas Buenaventura
Impala Platinum


Most of the companies listed above are also tracked in the two most popular precious metals mining companies index - XAU and HUI.

You can take a look at the charts above showing the XAU and HUI index movement.

The picture is small, you can go to Kitco to get a bigger chart. You can see at the low in October 2008, XAU was at around 70 and is now at almost 180 level. That's around 257% increase.

The general trend is still showing up. Nevertheless, I am still waiting for a little dip before buying. Also, I have just opened the account with Fundsupermart over the internet and waiting for my login password before I can invest.


How Much Am I Planning To Make?


Making some simple calculations, AmPrecious Metals has performed 150% while Public Bank Gold Investment Account (PB GIA) is at only 31%. That is 4.84 times.

Let's say if the international gold price were to double (2X) in the months or years to come, does that mean we can expect a return on AmPrecious Metals at 2 X 4.84 = 9.68 times!

If you were to just invest RM100,000 in AmPrecious Metals, when the gold price doubles, you will have close to a million ringgit - RM968,000.

Well, looks like a wonderful dream but seriously it's a better bet than PB GIA.


Update 13 October 2009:

The calculation above is not quite right.

If gold were to double, it'll be 100%. The calculation will look like this:

150% rise in AmPrecious / 31% rise in gold price = X / 100% rise in gold price


X = (150% x 100%) / 31%

X = 484%

Every RM100,000 invested will become RM484,000.