NEW YORK (HedgeWorld.com)--Last week Arenberg and Associates Ltd. LLC of Bayville, New York, launched Nostradamus All Gold Funds (NAG II), which promises absolute returns to those interested in allocating to gold. This long/short fund will invest globally in gold mining shares, exchange-traded gold vehicles, options for gold stocks and gold indexes.
Nostradamus All Gold Funds is a Cayman Islands company, and the new fund is listed on the Irish Stock Exchange. A previous gold fund (NAG I) that the same team has been managing since December 2001 will now be closed to new investment. The two funds are not merged because of tax considerations but will run side by side with the same strategy.
Irv Arenberg, a physician, got into asset management after selling a pharmaceutical delivery company that he had founded. He initially ran the gold strategy with family money, having started investing in the gold sector in 1970. A larger asset base will allow him to take advantage of additional trading opportunities, he said.
The fund currently has a long bias. "We're in the early stages of a secular bull market for gold," Dr. Arenberg said. The same gold stocks and options strategy generated audited returns of more than 141% in 2002 and as of November returns were 136% for this year.
Due to its concentration in gold, this investment program is subject to high volatility from month to month, however. For example, it had a 30% drawdown in July 2002. But Dr. Arenberg has fine-tuned the options trades and volatility is lower this year. The new approach includes writing puts on stocks that he wants to bring into the core portfolio at below market prices.
He says with this method, the net costs of recently acquired blue chip gold stocks have been about 60% below market. Additionally, he writes covered calls on stocks that are in the portfolio when a peak appears to be close, in order to dampen volatility and increase profits.
Dr. Arenberg expects to add to the impressive track record. Gold goes up in times of uncertainty, whether there is inflation, deflation or stagflation, he pointed out. "The long-term trend is our friend," he says.
Besides a bull market in gold, he foresees a multi-year downtrend in the U.S. dollar--gold and the dollar typically move in opposite directions.
He also looks forward to the effect of an exchange-traded gold fund that is expected to start trading on the New York Stock Exchange. Each ETF share corresponds to 1/10th of an ounce of gold, allowing investors to own and trade the metal without having to take possession of it. With the sale of shares, the ETF will have to buy and store gold. "That's going to be very exciting, very positive for gold," Dr. Arenberg observes.
NAG's investment team includes Henry Muller III and Justin Silver. Another analyst may be joining. Since inception the first fund has a cumulative return of 369%, subject to substantial volatility.