Chris Beer anticipates a favourable tailwind from higher gold prices, but he's not taking anything for granted. His focus is on managing the volatility of the gold stocks held in the $1.4-billion RBC Global Precious Metals 
.
"The main driver," says Beer, "will always be looking at companies that in a flat gold environment can grow their cash flows and earnings. That's the only way the company can really add value."
He expects the next 10 years will be different from the last decade, when companies struggled to have sustainable margins. "Today, the companies are being priced on real earnings and have perfect balance sheets and decent production profiles."
Beer is a vice-president and senior portfolio manager, Canadian and global equities at RBC Global Asset Management Inc. The Toronto-based manager has led the precious-metals mandate since March 2003. Brahm Spilfogel has co-managed the fund since April 2007. The duo also co-manages RBC Global Resources . As well, Beer co-manages RBC Global Energy with Cory Jacobson.
To manage risk and boost performance in the precious-metals mandate, the team uses an all-capitalization strategy. The fund is split into thirds that represent small-, mid- and large-capitalization companies.
The small-cap names are the "most treacherous and maintenance-intensive, but the most rewarding," says Beer. "We think our potential edge is looking at the smaller names and being largely Canadian based."
Based on the track record of RBC Global Precious Metals, that strategy is proving its worth. During Beer's tenure, the Morningstar 5-star rated RBC Global Precious Metals has a five-year annualized return of 18.5%, far outpacing the median 11.9%, as of July 31.
Beer says the fund held three or four big weights in companies that in 2010 went up five or sixfold, "and that happens with some regularity in the resource sector, if you get the names right."
Using a growth-at-a-reasonable-price (GARP) approach, the team considers three key criteria as essential across all capitalizations: the assets, the management and the financing or balance sheet.
The fund holds approximately 100 companies, with the top 15 holdings representing almost half of the portfolio. Weighted 80% in Canadian companies, the fund can also invest in gold, silver, platinum, diamonds and gold bullion.
Up to 20% of fund assets can be held in gold bullion, and the current weighting is approximately 8%. "At certain periods," says Beer, "gold bullion has outperformed gold stocks, so it's an asset-allocation decision as well as a liquidity decision."
Among the top holdings is Eldorado Gold Corp. ELD, a Vancouver-based gold mining company with assets in Turkey, China and Brazil. "Turkey is producing over half a million ounces," says Beer. "That's from zero in 1996." He says Eldorado management has shown that it can acquire or find reserves and develop them, while having one of the lowest production costs in the industry.
Emphasizing RBC GAM's team approach to management, Beer brings to the investment process his experience and keen interest in geology. His teammate Spilfogel digs deeper into the financial health and value of a company. "I think that's the yin and yang of our management," Beer says.
Beer, 46, has almost two decades of experience in the resource sector, along with practical field training as a geologist. A graduate of Memorial University in Newfoundland, he received a bachelor of science in geology in 1987.
After working for a few years as a geologist, he joined the Canadian Armed Forces officer-training program. A year later, when he required eyeglasses, he was not able to realize his goal of becoming a pilot. He returned to school and obtained an MBA from the University of Toronto in 1993.
After graduation, Beer began his investment career at Lévesque Beaubien Geoffrion Inc. in Toronto, working as an associate analyst covering precious metals, basic materials and utilities. He moved to RBC Dominion Securities in 1996, the year he received the CFA designation, then to MacDougall, MacDougall & MacTier Inc. in 1999. Then in 2000, he joined the RBC organization to focus on global resource companies and later took on broader responsibilities.
In positioning the fund for the future, "we're living through the most monetarily and fiscally challenging period that I've seen in my lifetime," says Beer. "That's not likely to end very soon, so gold as a currency will continue. The biggest issue in the next few years is determining if stocks will perform as well as gold bullion."
