ASA: Gold Stocks Cheap Vs. Gold Price, Own At A Large Discount To NAV

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VPanteon/iStock via Getty Images ASA Overview ASA Gold and Precious Metals Limited (NYSE:ASA) is a closed-end fund with a very long history specializing in gold equities. Whilst that history dates all...

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Whilst that history dates all...</p>\n\n<a href=\"https://seekingalpha.com/article/4699481-asa-gold-stocks-cheap-versus-gold-price-own-at-large-discount-to-nav\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>ASA: Gold Stocks Cheap Vs. 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Gold Price, Own At A Large Discount To NAV\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-16 21:48 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4699481-asa-gold-stocks-cheap-versus-gold-price-own-at-large-discount-to-nav><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>VPanteon/iStock via Getty Images ASA Overview ASA Gold and Precious Metals Limited (NYSE:ASA) is a closed-end fund with a very long history specializing in gold equities. Whilst that history dates all...</p>\n\n<a href=\"https://seekingalpha.com/article/4699481-asa-gold-stocks-cheap-versus-gold-price-own-at-large-discount-to-nav\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"GDXJ","symbol_name":"小型黄金矿业ETF(Market Vectors)","start_time":0,"source_url":"https://seekingalpha.com/article/4699481-asa-gold-stocks-cheap-versus-gold-price-own-at-large-discount-to-nav","article_id":"2443973045","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1068479600/image_1068479600.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2443973045","pubTimestamp":1718545731,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"VPanteon/iStock via Getty Images ASA Overview ASA Gold and Precious Metals Limited (NYSE:ASA) is a closed-end fund with a very long history specializing in gold equities. Whilst that history dates all","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"GDXJ":"小型黄金矿业ETF(Market Vectors)","ASA":"ASA百慕大基金","BK4585":"ETF&股票定投概念","GDX":"黄金矿业ETF-VanEck","GDX.AU":"VANECK GOLD MINERS ETF","BK4588":"碎股","CEF":"Sprott Physical Gold & Silver Trust","NAV":"纳威司达"},"translate_title":"ASA：黄金股相对便宜。黄金价格，以较资产净值大幅折扣持有","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ASA":1,"CEF":1,"GDX":1,"GDX.AU":1,"GDXJ":1,"NAV":1},"content_text":"VPanteon/iStock via Getty Images ASA Overview ASA Gold and Precious Metals Limited (NYSE:ASA) is a closed-end fund with a very long history specializing in gold equities. Whilst that history dates all the way back to 1958, there have been key shifts in the fund’s strategy along the way. It began with a focus on companies in South Africa, and until more recent times invested more in large companies. Nowadays, you are getting exposure to junior gold miners across many jurisdictions. As a result of such strategy pivots, more focus should be on the performance from April 2019, which is when Merk Investments took over as the manager. This also marked the time ASA started focusing on smaller gold mining companies, including exploration and development companies. This CEF has experienced trading at a consistent discount to NAV of circa 15% over the last five years. This has played a part in activist investor Saba Capital campaigning for change. As noted in the link, it included a lawsuit against ASA regarding a shareholder rights plan Saba viewed as unlawful and discriminatory. Since then, we have also seen Saba push for positions on the board. For gold bulls who are of the opinion that smaller gold companies share prices are very depressed versus the gold price, it is worth some consideration. The large discount to NAV, diversified exposure from a competent active manager can be a preferred way to play this theme. It can be challenging for the average small investor to pick the right junior gold stocks. Bear in mind however that ASA does take some concentrated positions, even though the fund is spread out across a high number of individual holdings. The junior gold sector is one where the closed-end nature of a fund helps as it can hold positions longer term, compared with an ETF having to trade more. ASA can therefore better capitalize on less liquid opportunities. ASA fund facts  The expense ratio of ASA is approximately 1% and the fund size about $400 million, which I consider efficient for this style of fund. It pays a semi-annual dividend, but this is negligible, so it is not a CEF for those looking for yield. The fund does not use any leverage.   ASA factsheet as of May 31, 2024. ASA past performance The five-year number below is quite close to the time of April 2019 when Merk Investments took over the management.   ASA factsheet as of May 31, 2024. The nominal performance of those 5 years looks solid. As the mandate is to invest in the gold sector, we really need to explore how other gold investments have fared in that time. There was an ASA gold miners webinar on April 10, with some performance data below available as of April 5, 2024. This also shows some five-year performance numbers at the time, which again approximately reflect management under Merk Investment. ASA gold miners webinar presentation performance data as of April 5th, 2024. In this table, we can see that the relative performance numbers stand up reasonably compared with some other alternatives. Of particular note is ASA outperforming the VanEck Junior Gold Miners ETF (GDXJ). ASA fund peers performance comparison Now let’s throw in some more actively managed gold funds for comparison purposes. ASA gold miners webinar presentation performance data as of April 5th, 2024. Should I invest in gold ETFs or gold funds? Whilst I remain skeptical of paying active managed fees to well researched, highly developed markets such US equities, I am open-minded regarding small gold companies. Intuitively, you might reason that there is better scope for outperformance because the junior gold sector attracts more speculators and lower quality companies. Therefore, a capable research house should be able to sort through that and add value, particularly if the manager has the benefit of a closed pool of funds. The peers' performance table above does show plenty of funds, though that have produced some relatively poor numbers. One could draw a conclusion that ASA had had a fortunate period and perhaps ETFs are the way to go. On the other hand, I do see the closed-end fund structure that ASA has as beneficial here. Whilst conscious of ASA “talking their book”, in terms of arguing for actively managed funds, they do cite the growth in passive funds as providing more opportunity going forward. I think most would agree with that, and there are some interesting points to consider in this regard. Firstly, the reduced number of active funds can mean less price discovery and more pricing inefficiencies to exploit. ASA gold miners webinar presentation April 10th, 2024. Secondly, the volatility in AUMs in ETFs such as the GDXJ and also the VanEck Gold Miners ETF (GDX) may surprise many. This can mean perhaps too many companies are being included / excluded, with the trading the ETF providers have to do having to be far more than what is ideal. ASA gold miners webinar presentation April 10th, 2024. It also might provide extra opportunities for an active manager being able to anticipate such indices movements or one that gets set in attractive IPOs. ASA vs Saba Capital, the story so far Earlier on, I referred to a shareholder rights plan that Saba viewed as unlawful and discriminatory, and subsequently filed a lawsuit. At that stage, Saba owned almost 17% of ASA. Since then, we have seen Saba pushing to refresh the board, and in April had some success there. Shareholders voted to elect Saba nominees Ketu Desai and Paul Kazarian to ASA’s Board of Directors. In other results at the annual meeting, “shareholders voted not to approve the proposal to increase the shareholder vote required to change the Company’s fundamental investment policies. Shareholders also voted not to approve the proposal to increase the Company’s authorized share capital.” If you read the earlier link above about Saba’s lawsuit, it is not difficult to understand why they would have issues with such a “poison pill” shareholder rights plan. If you want to hear more about the perspective from ASA towards Saba’s actions, there is a video interview from ASA here. My point of view as an observer here is I agree and disagree with parts of the actions of both ASA and Saba Capital. ASA has shown complacency regarding the consistent discount to NAV it has traded at for a very long time that is typical of many CEFs. Such a shareholder’s rights plan that they announced also was an example of that. Whilst I can understand Saba Capital’s action in response, I am also a little disappointed at the vagueness about their plans. I have observed instances when Saba Capital’s campaigns look to clearly benefit shareholders. By the same token, though, the video I linked to just above makes some valid points how typical plans to close the discount to NAV may not work so well in this unique situation. That is, tools such as large tender offers or even liquidation are not as effective with a portfolio that lacks liquidity compared with others. ASA historical discount to NAV  The last five years under the management of Merk, we can see the discount has been stuck in a wide range of about 15%.   ASA factsheet as of May 31, 2024. What I view as attractive, though, is the potential for that discount to close to circa 5% in the future. Some may view this as overly optimistic, but we can see when there is bullish sentiment for gold stocks like from 2008 to 2012 such a discount was not uncommon. What the ASA activism battle means going forward With Saba gaining positions on the board, I have read concerns that they could potentially influence some negative actions to occur. For example, fears they may push for liquidation, large tender offers, and / or gain control and even change the mandate away from gold stocks. In my view, such fears are overstated, probably because it suits the manager to do so. Saba is experienced and competent enough to fully understand any potential value destruction of such measures. They have enough skin in the game that if they were to pursue such strategies, they would do so in a measured way. More likely, though, they probably realize that this portfolio of gold stocks is something they need to be comfortable with themselves for the long term. It may well be we do not see much in the way of major changes for quite a while. Saba may have largely already accomplished a lot of what they set out to do. That is, have a more accountable board in place, and hope their pressure results in less complacency and more minor improvements such as a recent discount management plan. Where is the gold price heading? Let’s not focus too much on Saba, after all, the biggest factor that will determine future performance is simply how the gold sector trades. In terms of precious metals prices, I am bullish, and those interested can read some of my recent thoughts from a few months ago here. I discussed the Sprott Physical Gold and Silver Trust (CEF) back then. It has performed quite strongly since, although, has pulled back in the last month. The pullback in part was due to news that China was halting its gold purchases in May. I do not foresee this as a long-lasting trend. China would ideally like to see gold act more as a neutral reserve asset for settling trade imbalances, so will likely resume their steady buying. The fact that the gold price continued up in the month of May even without the usual China buying influence may even be a bullish sign. What is the outlook for gold stocks? It has been well discussed that gold stocks appear cheap in relation to the current gold price, and charts such as below clearly support this view. ASA gold chart book June 2024 Gold stocks tried in 2020 to rally with the gold price, but many investors soon got burnt. Inflation pressures were to soon prevent the expansion in margins that investors had hoped for gold companies. Inflation is now cooling from the 2022 scares, and the gold price very well bid from trends such as central bank buying. We are now therefore in a better position for gold stocks to rally. Even more depressing are small gold stocks versus their larger counterparts, the area where ASA provides exposure. For instance, look at the last decade charts of GDXJ underperforming GDX. Seeking Alpha total return 10 years to June 14th , 2024. ASA top holdings   ASA factsheet as of May 31, 2024. ASA other portfolio characteristics   ASA factsheet as of May 31, 2024. ASA risks Obviously, a lower gold price is a key risk for ASA, but assumedly those investors who are bearish on gold would not be considering ASA in the first place. Other risks include those of the view that Saba Capital may look to try and implement strategies that require liquidation of part or even all of the portfolio. As I mentioned earlier, they have enough common-sense and own enough of the company to not push for any detrimental strategies. We could also unfortunately experience a period where the manager, Merk Investments, gets their calls wrong. I view this as a risk worth taking on though and may even provide upside potential. As discussed above, there are some reasons to suggest active managers have good potential in the years ahead in junior gold stocks. Conclusion  I have put forward some arguments to suggest that we are still in a bullish environment for precious metals. Drilling down further, gold stocks are historically extremely cheap compared to the gold price. Small gold stocks are even more depressed compared to their larger counterparts. The rise in the popularity of passive investing and decline in active managers in the gold space can bring about better opportunities for future alpha.  An active manager such as Merk Investments with ASA is therefore an attractive fund to play the above themes. There is also good scope in the future for ASA to see its discount to NAV contract from the usual 15% range observed in recent years.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2443973045"}