Gold bullion has reached record highs recently, and precious metal stocks have seen triple-digit gains over the past year. Nevertheless, Robert Cohen sees continued upside.
"We're a long way from the top," says Cohen, 40, manager of the $568.5-millionDynamic Precious Metals 
and vice-president at Toronto-based Goodman & Co. Investment Counsel Ltd. "We only make [economic] forecasts for about five quarters. But we're still bullish on gold as an investment proposition for the next eight to 10 years."
This week, gold bullion was trading at around US$1,200 an ounce. Cohen notes that the gold rally began in 2001, when bullion bottomed at around US$265. "There will be times of trace-back. But we are in a major structural up-trend that will last another decade," he says. "As our chairman, Ned Goodman, has stated, for many years we were in a state of disbelief. Now we're finally into a period of acceptance. We still haven't seen any euphoria."
Dynamic Precious Metals returned an eye-popping 123.8% for the 12 months ended Oct. 31, surpassing the 106.1% median return in the Precious Metals Equity category. The 4-star rated fund has also outperformed over longer periods. It returned an annualized 7.7% for the three years ended Oct. 31, and 15.9% for the five-year period, compared with 1.8% and 11.5%, respectively, for the median return.
Cohen maintains that, despite the strong rally, gold stocks are not expensive since they are priced within one standard deviation of where stocks are normally priced, based on the spot gold price. "They got oversold in September 2008. Today, on a standard deviation basis, they are probably 10% undervalued."
A mineral process engineer by training, Cohen favours junior and mid-cap companies that have the potential to hit the proverbial jackpot. One classic example is Osisko Mining Corp. ( OSK), which he has held since late 2005 when it was a penny mining stock. Today, its shares are fetching $8.
"That's one of our exceptional winners," says Cohen, adding the average weighted price is $3.38. "It's not just based on the gold price alone. It's based on the fact they have found 10 million ounces of gold and have fully financed the project, which includes moving part of the town of Malartic, in northern Quebec. They are four quarters away from start-up."
A Vancouver native, Cohen developed an interest in mining at an early age. "I've been exposed to the industry since I was a child," says Cohen, who followed in the engineering footsteps of his father and brother. He went to University of British Columbia and graduated in 1992 with a degree in mining and mineral process engineering.
Cohen worked for six months as a mineral process engineer at the Chilean Escondida copper mine, owned by BHP Minerals Pty. Ltd. That was followed by a job at the Doyon mine, owned by LAC Minerals Ltd. and Cambior Inc. in northern Quebec.
Then he returned to Chile where he worked for three years at Aurex Resources Corp., a Canadian junior copper producer.
Cohen learned how to value companies at Aurex. "I really liked that and wanted to get into this end of the business, either on the sell side, or the buy side," recalls Cohen, who returned to UBC to earn his MBA.
After completing a summer internship in 1997 at Goodman & Co., Cohen landed a full-time job the following year with the Goodman equity team. In May 2000, he was promoted to manager of the precious metals fund.
Cohen tends to hold about 35 stocks, although the top 10 account for almost 90% of the portfolio. Single positions are limited to 10%, based on acquisition price. Portfolio turnover was a moderate 28.4% for the 12 months ended June 30.
Cohen is convinced bullion's ascent will continue because of factors such as the falling U.S. dollar, and the dramatic growth in U.S. monetary supply. "The U.S. money supply has doubled, to $1.9 trillion, since the collapse of Lehman Brothers," he says, noting that the gold price is 60% correlated to the growth in money supply. "In the meantime, gold is a very good proposition," he adds. "Gold prices will move up as the currency declines in value."
While mulling over macroeconomic drivers, Cohen is also occupied with running the $24-millionDynamic Strategic Gold Class Series A, launched last August. It combines gold bullion and gold stocks.
"We run a quantitative model where we look at the valuation of gold stocks relative to the gold price," says Cohen. Today, bullion accounts for 45% of the fund, and the remaining 55% is in a mix of nine mid-cap producers.
"We're not just setting it at half-and-half; we adjust it," says Cohen, noting the fund is back-tested. "We tilt the 'barbell' according to our quant model. But it's a gentle tilt and helps reduce volatility."
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