The case for active management in gold and precious metals mining equities

Academics and market watchers alike have long debated the relative merits of active versus passive management. We approach the issue from the perspective of a practical investor, recognizing the need for both management styles. We believe that there are segments of the market where either active or passive management can offer a distinct advantage, but in gold and precious metals mining equities, we favor an active investment strategy.

Market and industry dynamics may give active managers an advantage in gold and precious metals mining equities

Our team’s active approach seeks to benefit from several unique characteristics of the gold and precious metals mining sector. Those characteristics include the operating dynamics of the sector, the volatility of the asset class, and the potential advantages to be gained from fundamental research. The precious metals sector is highly dynamic at the operating level. Miners do not set prices for the metals they produce, the market does. Because miners are price takers, a key driver of their stock price performance is how well they operate their underlying asset base. Doing this well encompasses having high production efficiency plus an ability to find and grow reserves, build and expand mines, and produce metals profitably. We believe companies that can execute on these objectives have a greater chance of delivering outperformance. Active managers have the flexibility to overweight companies that they believe offer the best risk-adjusted opportunities and underweight the companies that they consider to be potential laggards.