Funds dealing frequency: daily or weekly?

poto

Hi, I was just browsing for funds investing in gold miners and happened to notice a difference in the dealing frequency for two of them:

1. LF Ruffer Gold has a dealing frequency set to weekly
2. BlackRock Gold & General has a daily dealing frequency

What is the rationale for the weekly option?
And, all the other things being equal, which one of the two is to prefer? For what reasons?
Many thanks

Thrugelmir

Another alternative is WisdomTree Physical Gold - PHGP

bowlhead99

poto said:

Hi, I was just browsing for funds investing in gold miners and happened to notice a difference in the dealing frequency for two of them:

1. LF Ruffer Gold has a dealing frequency set to weekly
2. BlackRock Gold & General has a daily dealing frequency

What is the rationale for the weekly option?
And, all the other things being equal, which one of the two is to prefer? For what reasons?
Many thanks

The reason for them to offer only weekly (Wednesdays plus the last business day of the month) is as simple as, it's easier for them.

Historically, long term investments in specialist equity funds did not need daily dealing to attract capital. Institutional investors like pension funds and insurance companies would not suddenly decide they needed their money back randomly on a rainy Tuesday afternoon, and would plan their subscriptions and withdrawals for a month end or perhaps simply whichever week during the month was convenient for their own cashflow needs. If you're allocating capital to a strategy for a decade or two, it's unlikely that you'll need to specifically get the money back on Thursday 29th rather than simply putting your order in to get it back at the month end on Friday 30th. 

Retail investors can be more fickle and might like to believe they can time the market better if they have more choice of entry and exit dates, and certain types of institutional and corporate investors may be more active or nimble in when they choose to take market exposure or reallocate between asset classes. So most open ended funds offered to retail these days offer daily dealing so that having to wait around to deploy capital or get it back is not a reason for a prospective investor to prefer a rival instead.

It's undoubtedly easier for a fund manager to offer less frequent dealing, and process subscription and redemption requests in a few batches during the month, and it may result in lower transaction costs because the purchases and sales of the underlying assets can be done in larger, less frequent transactions, while lower cash balances are needed to be kept on hand because there isn't an unknown daily demand from investors to cash in their chips. There are plenty of private funds or funds-of-funds which only offer monthly dealing, but in the retail sector it's more common to have daily pricing and dealing.

As to which fund to prefer, it is like comparing any two funds - consider the strategy, fund track record of performance and volatility through different market conditions, the manager's experience and track record, the asset mix and size of the fund, the level of management fees and other ongoing charges, etc etc.

Over the last ten years the two funds have delivered pretty much the same overall return but the paths have been different - Ruffer lost more coming off the last 2011 gold price peak, and has had to triple its investors money in the last five years to get back to break even for the decade while BlackRock only needed to double.

If you go back further to look at the charts in the decade before that, you can see that BlackRock did better at the start of the great credit crunch /global financial crisis in 2007, growing a bit more before both funds lost 60% over the course of about 8 months in mid 2008. That earlier outperformance by the BlackRock fund and better start to the recovery meant that Ruffer had to grow 150% over the two years from March 2009 to try to catch up while BlackRock less than doubled (heavier allocation to high performing gold miners helped). Then Ruffer swiftly collapsed, falling 80% over the three years from summer 2011. It's a rocky road to be sure.

Overall BlackRock is ahead over the period they've both been running. The 'and general' part of its name covers the fact that its strategy is to have at least 70% in miners of gold and other precious metals but can also take exposure to other commodities in the last quarter to a third of its portfolio. Depending what types of mining companies are in favour from time to time, this might be a good thing, or not.

Thrugelmir said:

Another alternative is WisdomTree Physical Gold - PHGP

There's obviously a fundamental difference between that Wisdom Tree vehicle which holds a pile of physical gold metal, and the two funds mentioned by the OP which invest in ownership of gold mining companies.

Miners are a heavily geared play on the gold price because they don't simply make 5x as much money at $2000/oz as they do at $400/oz. At $2000 they can mine faster and sell their inventory, while at $400 it's not economic for them to dig up any gold at all and they will just have to give up, sack the workforce and put the mine on 'care and maintenance' while hoping for a recovery, which is not very good when they still have  debt obligations and some operating costs. They might die rather than recover, or continue with the lenders taking over ownership from the shareholders for a nominal amount, leaving the equity investors with a near total loss.

So the fortunes of an equity or debt investor in a mining company are tied not just to the theoretical value of the mined gold and the un-mined resources still in the ground, but also to energy costs, borrowing costs/ availability of credit, health of the equity markets generally, political climate in the country or countries in which they are operating (typically the developing world), labour issues (covid shutdowns, industrial disputes) and so on.

Obviously a physical gold ETF/ETC is an 'alternative' to a fund which owns mining companies but it's quite a different type of exposure to the underlying commodity.

poto

Thanks @bowlhead99 for taking the time and providing such a detailed analysis.