ES Baker Steel Gold & Precious Metals Fund – Q2 2021 Investment Manager’s Commentary


Fund Performance

The ES Baker Steel Gold and Precious Metals Fund (“the Fund”) rose +4.0% (B Class) during the quarter compared with the EMIX Global Mining Gold Index (“the Index”) which rose +4.6%, while gold rose +3.7% (in GBP terms). Full details of Fund performance can be found here.

The precious metals sector recovered somewhat during the quarter, however conditions remained mixed for gold and silver miners. Investor sentiment has been subdued, particularly towards silver miners, impacting Fund performance relative to the Index during the period.

The Fund’s investment approach continues to be value-driven and focused on those companies with the best assets, effective management, attractive shareholder returns and that operate in an ethical and sustainable manner in line with our own ESG principles. Our team currently sees substantial levels of fundamental undervaluation in precious metals equities and continues to work actively to ensure the Fund is well-positioned to benefit from the sector’s further recovery ahead.

Market Update

The second quarter presented shifting conditions for the precious metals sector, as rising inflation expectations boosted gold and silver prices during April and May, before the spectre of potential US rate hikes sparked a sell-off across the sector amid concern from investors over rising yields. The question of whether we are entering a period of higher inflation remains central for investors at present. As we have highlighted in previous reports, we believe macroeconomic conditions are increasingly inflationary, as money printing, monetary debasement, higher debt levels and low/negative real (not nominal) interest rates persist. Alongside these inflationary macroeconomic drivers, developed economies are facing increasing bank lending, pent-up consumer demand, “reshoring”, and a range of supply side issues in the wake of the COVID-19 crisis. The shift by central banks, led by the Fed, towards average inflation targeting, further raises the risk of a significant overshoot of inflation as the economic recovery gains pace. Investing in real assets and commodities can offer investors a hedge against inflation. Gold has historically thrived as an inflation hedge during periods of rising prices, such as the 1970s, when the metal underwent a substantial cyclical uptrend.

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