Mutual funds can have gold exposure for different reasons.
As the world economy continues to improve and market indexes move upward in fits and starts, investors are still finding plenty of reasons to be nervous. Rising oil prices tied to unrest in the Middle East and Africa, the European debt crisis, and fears about the U. S. debt load and possible future inflation have all contributed to a jittery feeling in the markets despite generally robust corporate profits.
One of the most obvious ways this nervousness has manifested itself is in record-high gold prices. Gold is typically used as a hedge against inflation, and often as a safe haven from all kinds of uncertainty. When Standard & Poor's recently downgraded its credit outlook for U.S. government debt, major stock market indices fell while the price of gold rose to record highs near $1,500 an ounce.
There are various ways for mutual funds to get gold exposure. Among the most direct, short of buying and storing gold bars, is through the SPDR Gold Shares
Diversified Funds Holding SPDR Gold Shares
The top fund here, Midas Perpetual Portfolio
The rest of the list consists mainly of stock funds with the flexibility to use such things as gold, derivatives, and cash to supplement their core portfolios. Several of them have long track records going back more than 20 years, and one of these, First Eagle Fund of America
A more common way for funds to get gold exposure is through gold-mining stocks, which are heavily affected by the price of gold but also feature business risk. There are a number of mutual funds specializing in gold stocks, such as Fidelity Select Gold
Such specialty funds have to own gold stocks, but the situation is different with diversified funds, where a big bet on gold miners is more significant. Here, inflation hedging may be a factor, but a fund may also like these stocks for their valuations or business models. The following table shows the 10 diversified funds with the largest percentage of their portfolios in gold stocks, excluding clone funds and those with less than $100 million in assets.
Diversified Funds With Exposure to Gold Stocks
Four of these are Nuveen funds subadvised by Tradewinds Global Investors, and a fifth is subadvised by NWQ Investment Management, where much of the Tradewinds team used to work. The top two funds on this list, Nuveen Tradewinds Value Opportunities
Several of the funds in this second list have performed very well in the past year as gold prices have risen, but not all have, as the Wells Fargo Advantage funds illustrate. In general, gold exposure (whether through gold stocks or more directly) won't necessarily have a very strong correlation to a fund's performance; rather, it tends to reflect a certain caution about the macroeconomic environment, of the type that can be found in various types of funds.