US Global Investors, which manages $3 billion, is hedging using the options market, selling call options an option to buy a stock at a given price by a certain date against a position they own. This caps an investor’s potential gains, but also offsets the cost.
Michael Matousek, senior trader at San Antonio-based US Global Investors, is still looking for opportunities. One that he has identified is the trading action in gold stocks.
Given the uncertainty, he said the firm’s strategy now was “as much about protecting capital as generating returns,” which means a lot more hedging against falls in the market.
“Dollar stocks tend to be a lot more volatile than the bigger names, but since it’s harder to get into one with less liquidity you miss those movements,” he said.
Matousek wouldn’t disclose how successful the strategies have been, citing compliance issues, but the US Global Investors World Precious Minerals fund is up 5 per cent so far this month.
Nerves are frayed on Wall Street as the threat of a US debt default looms ever larger, and many investors are choosing to wait for calmer waters. With no clear resolution on US debt ceiling talks, those in the market are sticking to an extremely short time horizon.
Gold has surpassed $1,600 an ounce, soaring to an all-time record as investors flee to safety. Gold mining firms have not seen that kind of action.
“Over the past few weeks gold stocks have been more correlated with the S&P than the price of gold, resulting in days when gold rises but miners fall, something that’s happening more and more,” he said.
“That’s a trend we’ve focused on that I don’t think the broader market has noticed.”
The 50-day correlation between the S&P 500 and the Amex Gold/Silver Index was strong in the middle of July as gold and gold stocks moved in opposite directions.
That has reversed recently, to the benefit of Matousek, a trend he hopes continues. The dislocation was a chance to scoop up what he sees as undervalued stocks that later rebounded.
From/ Gulf Today