Q: Good morning,
I am underweight gold at the moment, and know that this needs to change for a whole host of reasons, particularly heading into what traditionally has been a volatile time of year. The problem is that when I look at price charts for both AEM and FNV I struggle to add at these lofty levels. Do you think initiating a 1-2% weight in total split evenly between these 2 names would be prudent in light of ongoing and expected future market volatility?
Thanks as always.
I am underweight gold at the moment, and know that this needs to change for a whole host of reasons, particularly heading into what traditionally has been a volatile time of year. The problem is that when I look at price charts for both AEM and FNV I struggle to add at these lofty levels. Do you think initiating a 1-2% weight in total split evenly between these 2 names would be prudent in light of ongoing and expected future market volatility?
Thanks as always.
5i Research Answer:
We would look less at where the stocks have been and more at valuations. FNV is more expensive at 34X earnings, due to its royalty structure. AEM is reasonably priced at 18X. Both have solid momentum, good balance sheets, and strong earnings growth expected. We would be very comfortable buying both in the proposed combination. The sector will always be volatile, but we do like the sector's prospects as well right now.