EFG Private Bank has teamed up with US fund manager David Tice & Associates to target high-net-worth investors with a hedge fund investing in gold stocks.
The prudent gold fund is a Jersey-domiciled hedge fund that will take long and short positions on small and mid cap gold stocks. It will have a long-only bias with a maximum short position of 40 per cent.
EFG Private Bank selected David Tice as the manager because of his experience in running hedge funds in bear markets. He currently runs the prudent bear fund, which is a short-only fund, and the prudent safe harbour fund, which was established in 2000 to take advantage of the falling dollar and rising gold price.
When running the prudent gold fund, two consultants will assist Tice - one is a specialist in gold stocks while the other is skilled in valuations. Together, they will look for small- and mid-cap gold stocks that are undervalued and under-researched.
Gold has a low correlation to global equities but is rarely used as a long-term investment because it cannot deliver equity-style returns. However, the 25-year bear market fuelled by the strength of the US dollar has led to a reduction in the volume of gold produced. This in turn has pushed up prices where demand exceeds supply and would suit this fund's preference for long positions.
The ability to sell short provides the potential to make money at any stage of the economic cycle, including situations where the market recognises gold stocks are overvalued and over-hyped, leading to a fall in prices. However, the specialist nature of this fund makes it a niche product for high-net-worth investors who are looking for a diversification tool while they wait for global equities make the long journey towards a recovery.