Whether you like Trump or you don't like Trump you're likely to agree on one thing, he's thrown a wrench into the U.S. political machine. It remains to be seen what comes of that, but the president's actions so far have some billionaires expecting his disruptive political influence to spill over into the investing world. And to calm their own nerves, billionaires like Jacob Rothschild, David Einhorn, and Ray Dalio own gold. Here are four different ways they've gone about including gold stocks in their portfolios.
Diversification matters
Rothschild and Einhorn have hedged their gold bets by punting. Instead of buying individual stocks they've decided to own gold-focused funds. That's a great way to quickly add a diversified portfolio of gold investments to a portfolio without having to do a deep dive and figure out which individual gold stocks are the best ones.
Image source: Getty Images.
At the start of 2017 Rothschild noted, "Our investment policy throughout 2016 has been one of continuing caution with an emphasis on capital preservation... We continue to hold gold and gold mining shares amounting to 6% of the portfolio." He's worried that the "patiently crafted international cooperation" of the last 70 years is threatened, specifically noting that U.S. plans to increase infrastructure spending, an increased focus on U.S. regulatory reform, and Trump's goal to reduce corporate and individual tax rates could do more harm than good because of their timing. As an example, he points to rising trade-themed tensions with China, which is taking place at a point when China's growth is slowing.
With caution in mind, RIT Capital Partners, which is Rothschild's investment vehicle, has chosen to invest in gold stocks by owning Blackrock World Gold Fund. The fund's objective is total return, which it attempts to achieve by investing 70% of its assets in companies that mine for gold. At this point roughly 85% of its assets are in gold stocks, with around 12% in silver. Cash, copper, and diamonds make up the rest.
A little over 90% of the Blackrock World Gold Fund's portfolio is in mid-cap and large-cap stocks. And two of the fund's top 10 holdings are Franco-Nevada (FNV 0.67%) and Gold Corp (GG). (More on this pair later.)
David Einhorn, who heads up Greenlight Capital, has taken a similar approach but has chosen to go the exchange traded fund route. In this case, he's gaining exposure to gold stocks through VanEck Vectors Gold Miners ETF (GDX 1.60%). In late February Einhorn held a conference to discuss Greenlight Capital's performance, noting that he's concerned about inflation. He specifically stated that he believes, "The new administration comes with a high degree of uncertainty..."
VanEck Vectors Gold Miners ETF has an expense ratio of 0.51% and is intended to track the global gold mining industry, though around 50% of its assets are invested in Canadian miners. As for market cap size, the fund includes small-, mid-, and large-cap names. The fund is up around 8% year to date through June 27th and its top-10 holdings list includes Franco-Nevada and Gold Corp (still more to come on these names).
Picking some stocks
Ray Dalio of Bridgewater Associates is also worried about Trump's impact on the world. Like the other two billionaires above the issue is uncertainty. Dalio recently noted that "When faced with the choices between what's good for the whole and what's good for the part, and between harmony and conflict, he has a strong tendency to choose the part and conflict."
With that as a backdrop, Dalio has included a few gold names in the mix. Unlike the billionaires above, however, he's done some stock picking. You might have guessed a couple of names he's chosen already, Franco-Nevada and Gold Corp.
Gold Corp's investment plans. Image source: Gold Corp.
Gold Corp is your typical gold miner, owning and operating mines. Gold Corp's five-year plan is to reduce its all-in sustaining costs by 20%, increase its reserves by 20%, and up production by 20%. The goal to increase production is a nice change since production fell 17% last year as the company continued to adjust to current market conditions and refocused its business for the future.
Franco-Nevada, meanwhile, is a little bit different because it isn't a miner, it's a streaming company. That means it gives miners cash up front for the right to buy precious metals, like gold, at reduced rates in the future. It's probably better to look at Franco-Nevada as a portfolio of gold mines. It currently has investments in more than 330 assets around the world. That said, Latin America makes up about half of its portfolio, with gold accounting for roughly 70% of revenues.
FNV Dividend Per Share (Annual) data by YCharts.
It's worth noting that Franco-Nevada has an enviable dividend track record, having increased its dividend every year for the past decade. Although the yield is just 1.2%, the last decade included a deep commodity downturn. Being able to hike the dividend through this particular period shows a real commitment to shareholders and the resilience of its business model.
Four ways to play gold
If billionaires Rothschild, Einhorn, and Dalio own gold, you might be tempted to include some exposure to the yellow metal in your portfolio, too. And with all of them citing market uncertainty driven by the Trump administration, you might even share some of their broader investing concerns. Gold could even be starting to sound like a really good idea!
Now that you've seen some of their gold choices, you have someplace to start your own research efforts if you want to invest like a billionaire. For a diversified approach, consider fund options like Blackrock World Gold Fund and VanEck Vectors Gold Miners ETF. If you prefer stocks, like Dalio, take a look at Gold Corp and Franco-Nevada.
