Mutual Funds/Gold Funds


Hi John

May I ask two questions?  First, I hear "gold gold gold" (and sometimes "silver").  If gold is so hot why are there no gold funds topping out the Morningstar list sorted by return?  It seems most of the funds with highest returns (short and mid) are large cap growth funds.  Is gold not so hot?  Do gold funds really reflect the growth in value of the metal?

Second, are funds restricted by law as to what they can invest in?  If a general stock fund sees dollar weakness how much can it invest in foreign markets without having to call itself a foreign fund?  How much "truth in advertising" is there?  If I see dollar weakness should I invest in a country with more currency stability, or rely on a US fund manager to do that for me?



Hi Pete. Thanks for getting in touch. Generally speaking, gold is a speculative investment meaning its price as an investment is driven by investor behavior vs measurable fundamentals such as earnings, profits, p/e ratios, etc. It is this investor behavior that will typically cause gold to do well during times of uncertainty. As of late, investors have recognized the perceived value in the stock market and therefore you have seen the prices of equities in general do much better than gold. In regards to your question about gold funds reflecting the price of gold, funds such as the Gold ETF (GOLD) will do this better than some of the others since mutual funds do no own actual gold buillion and instead invest in options and futures designed to track the price of gold. Sometimes this works out well and other times it does not.

Regarding your second question, mutual funds are required to deliver prospectuses that outline how they intend to invest the fund assets and the set parameters. Often times, a mutual fund will stray far from its publically stated objective, however, when you dig into its prospectus you will find that they state they have additional flexibility that would not seem obvious based on the general description. We call this "style drift" and this happens to be something I stay clear from as an investment professional. My view is that if too many mutual fund managers in a clients portfolio have the ability to do whatever they want, I (nor the client) never truly knows how they are invested. I hope this helps.


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John D Smith, CFP


I can answer detailed questions regarding mutual fund investing, retirement planning, education planning and related comprehensive wealth management and investment concerns.


I have been providing fee only investment management and comprehensive wealth management services for the past 19 years.

I have a degree in Financial Planning & Counseling and I am also a Certified Financial Planner practitioner.

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