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  5. BTO: Greetings, I know 5i isnít a fan of averaging down and while it is a strategy that has worked well for me in the past, initiating positions / timing hasnít worked in my favour and I tend to buy the... [B2Gold Corp.]
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Q: Greetings,

I know 5i isnít a fan of averaging down and while it is a strategy that has worked well for me in the past, initiating positions / timing hasnít worked in my favour and I tend to buy the peaks. Hence the DCA strategy working for me I guess in lowering the average share price and eventually seeing some reasonable returns. Of course it tends to lead to overweight positions which I trim back. Examples are BA and vermillion.

Now here I am again in a situation. Holding ABX and BTO and down about 25%. Even so I am VERY comfortable with these 2 companies in my portfolio and I see them as complimentary to each other. I donít see shifting way from them as I feel comfortable even being down 25%. However I am looking to DCA these 2 and bring my total gold exposure in my portfolio up from 7% to 10%. I have no other precious metals exposure. As I am aware 5i tends to be comfortable with 10% total sector position.

Could you weigh in on the narrative in general, address timing of purchases (as 5i tends to like a company and be ďcomfortable buying hereĒ and seems indifferent of timing), DCA strategy, and advise of your opinion on these 2 companies, strengths, weaknesses, expectations.

Deduct as needed as my credit burn is quite slow.

Cheers and thanks for all the great advice! You have made a big difference. 🙂

Asked by Duane on April 09, 2021
5i Research Answer:

If the company's fundamentals are strong and we have high conviction the company, we do not see an issue with averaging down. In fact it might be the best thing to do if position size allows. We find it to be more of a problem when one averages down on a company with weak fundamentals, we have less conviction in the story or averaging down for the main goal of "breaking even". For a 'sector' play, not related to fundamentals of a particular ocmpany, we can certainly relax our avoidance of averaging down. 

We note that we would not have a problem of sector exposure reaching 20% for some sectors with 10% being more of an average.

BTO has a much better yield and is growing its dividend fast. The company is also much cheaper on a forward earnings basis (9.8x vs 16x for ABX). However, ABX is much larger at a $45B market (vs $5B mid size market cap for BTO) and likely more stable (shares down only 8% YTD vs 16% for BTO). We would expect more potential upside with BTO given strong growth in revenues, profitability and cheaper valuation, keeping in mind higher risks with a smaller gold producer.