March 4, 2019

Some of you may remember the Bre-X scandal, where mining analysts were purported to be just about tripping over bars of gold at the now infamous Busang deposit in Indonesia. It was a fascinating and tragic story about fraud, human nature, people ‘falling’ out of helicopters and a lot of participants sticking their heads in the sand for as long as possible. It turns out folks saw what they wanted to see, and believed what they needed to believe to keep the fairy tale going.

Ultimately, the gold ‘samples’ proved to have been spiked with real gold. And the gold itself was the kind found in rivers and not in the hard-rock prevalent in this area. Details, details.

Well it turns out that gold is hot again. And the companies we hold in HEP deal in real gold, not the imaginary kind. In fact, HEP has outperformed XGD (the S&P/TSX Global Gold Index) by 300 basis points in 2019, and by 5.77% over the past year on a total return basis.

Wealth Professional Magazine asked me for my views on gold and I sent them this:

I like gold here. The great central bank experiment of the past decade, which has expanded balance sheets and driven yields to extreme lows, has created a false sense of stability. This rampant stimulus has ballooned earnings and asset prices, and that is dangerous. Central bank gold-buying is at 50-year highs as they attempt to hedge their own monetary misdeeds. World debt levels are very high and gold has severely lagged U.S. debt levels. Miner exploration budgets have collapsed and supply should stay tight. Expanding Chinese and Indian middle classes are massive consumers of gold. Inflation? Gold wins. Low/negative rates? Go for gold.



Chart Source: Bloomberg, from February 16, 2018 to February 19, 2019.

Annualized Returns*

ETF/Index 1
HEP 13.51% 23.64% 26.79% 8.81% 11.70% 8.72% 2.52% -- -8.20%
XGD 14.51% 19.52% 25.32% 5.80% 5.93% 3.75% 0.42% -4.58% -6.88%

* Source: Morningstar Direct, as at February 19, 2019.
** As at April 11, 2011, the inception date of HEP.

The indicated rates of return are the historical annual compounded total returns, including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Additionally, index returns do not take into account management, operating or trading expenses that may be incurred in replicating the index. The rates of return above are not indicative of future returns. ETFs are not guaranteed, their values change frequently, and past performance may not be repeated. The index is not directly investible.

The views/opinions expressed herein may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

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*The indicated rates of return are the historical annual compounded total returns including changes in per unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. The rates of return shown in the table are not intended to reflect future values of the ETF or returns on investment in the ETF. Only the returns for periods of one year or greater are annualized returns.