March has been an eventful month, read more about our view on the market in AuAgTrends below.
A major focus for us this month has been to develop our asset management process where we have clarified how we promote environmental and social characteristics (according to Article 8, (EU) 2019/2088). We have updated the sustainability information for both funds, and they can be found under "Documents / Sustainability" on each fund page (AuAg Silver Bullet, AuAg Precious Green). As a large investor (thanks to your investments in the funds), we have the opportunity to influence the companies we invest in (Impact Investing). We actively communicate with the companies to ensure that they develop their work with sustainability. Great progress is already being made in the mining company sector, where it is becoming increasingly common to electrify mining operations and use fuel cells in vehicles.
We offer transparent and clear investment products and at the same time we work actively to share knowledge and other information with you in our digital channels. We post all links to videos, podcasts, and articles on our website under the Library. Also take the opportunity to follow us on Twitter and LinkedIn to get the latest updates.
We are grateful for the trust we receive from all investors - the joint journey has just begun!
The month of March has now come to an end and so has the first quarter of the year. Fortunately, this first quarter was not as dramatic as the first quarter of last year when the Covid-19 pandemic shook the markets globally. But to claim that it has been an uneventful quarter is far from the truth.
In March, a new major stimulus package was rolled out in the US at a total sum of 1.9 trillion USD. This included stimulus checks of $1400 to around 160 million American households. The questions you as an investor directly should ask yourself are: Where does all this free money come from? And how are these huge deficits going to be financed and repaid one day if not through future budget austerity and tax increases? Maybe the politicians and central banks hope that the current inflation situation will work forever as the official reported inflation is about 1-2% but where the real inflation is at least the double.
With the amount of money expanding at an awfully fast pace, not only in the US, but all over the world, it is destined for an upcoming price inflation. All this newly printed money must go somewhere in the end. Since the debt crisis in 2008, the debt levels have continued to increase. Now after a year of pandemic and lockdowns, we see an asset inflation that continues to manifest itself. This is obvious in share prices, but also in housing prices, which are constantly reaching new record levels for both villas, apartments, and holiday homes.
Rising inflation expectations have also affected the US 10-year Treasury rate that now has reached the highest level in over a year. This, in turn, has strengthened the sector rotation that has taken place for the past few months, where we’ve seen large movements from growth-, green-tech- and small companies and reallocated into value companies. Nowhere has this been any clearer than in various stock market indices such as OMXS30, DAX, Dow Jones and S&P 500. All indices noted new record levels during March, while technology-heavy and small company-heavy Nasdaq and Russel2000 slipped significantly behind and closed just over 6 percent below their respective highs.
AuAg Precious Green B, which is 60 percent exposed to the companies that aims to make the world greener and 40 percent to physically allocated precious metals with a focus on gold, gained 0,47 percent during the month of March. For more information about the fund, see the fund page and the fund sheet.
AuAg Silver Bullet B was down 5,32 percent in March. The trend for the fund's holdings reversed in the beginning of April and looks very strong with an increase on the first two days of 6,29 percent. The positioning on the american commodity exchange (COMEX) is also bullish. For more information about the fund, see the fund page and the fund sheet.
In the last quarter, we made several exciting observations in the graphs of the underlying raw materials. The gold price in USD fell by almost 10 percent. Compared with the third and fourth quarters of 2020, the average price of gold is just under 6 percent and 4 percent lower, respectively. If we look at the silver price, a more positive picture emerges. The silver price in USD fell by just over 7 percent during the first quarter. However, the average silver price for the first quarter is as much as 7 percent higher compared with the third and fourth quarters last year. Despite the fact that both gold and silver prices fell in unison during the first quarter of the year, current gold and silver prices are still at high levels historically, which contributes to continued robust earnings for the companies. This should become even more apparent in the forthcoming quarterly earnings reports.
As a long-term investor, it is important to focus on the future, not the coming quarter or even the coming year but rather try to look ahead 3 years, 5 years or if possible 10 years. A continued dose of patience is hereby prescribed. We are convinced that we will see both increased and continued money printing from the world's central banks, and that the transition from fossil fuels to green energy is a trend that will most likely continue for a long time. When major underlying trends that day by day continue to affect and change the world have been identified, temporary factors such as interest rates, real interest rates, movements in the foreign exchange market, or external events play a negligible role in the long run.
Changes in the portfolios: At AuAg Fonder, we want to own our companies "forever". At the same time, we want to be transparent with our portfolio holdings. Our long-term strategy also results in lower transaction costs for the funds. However, long-term investing and active management go hand in hand for us, and therefore we are constantly looking for new additions to enhance future performance. During the first quarter, two new super-interesting companies was added to AuAg Silver Bullet: Gatos Silver and GoGold Resources (both companies are smaller holdings, category 4, i.e. 1% target weight). Gatos Silver was listed at the beginning of November 2020 and is a producer that focuses primarily on the extraction of silver. They possess one of the largest areas for silver deposits in Mexico. GoGold Resources is another producer that primarily focuses on the extraction of silver in Mexico. Both companies fulfill our investment criteria: a high proportion of silver extraction, geopolitically stable jurisdictions, competent and experienced management, and sufficient trading liquidity.