Jaime Carrasco, portfolio manager at Canaccord Genuity
Focus: Precious metals and North American dividend stocks

MARKET OUTLOOK

Due to rising systemic risk, I advise investors hedge their portfolios with precious metals.

Gold is holding firm at levels inconceivable by most analysts one year ago. This is how I’m allocating clients funds into the sector to mitigate the associated risks:

1. Building a solid foundation of producers and royalty companies, the principal mandate of the Special Opportunities Portfolio I manage. First, low-cost producers with good management, long reserve mine life and in geopolitically safe areas. Second, royalty companies with growing cash flow, production and project flow. This strategy delivers solid returns in companies financially levered to the PMs, with many raising dividends this quarter.
2. Some allocation into developing producers and companies currently building their mines. This is a good way to acquire companies at a discount. Something always goes wrong, but this is where good experienced teams make a big difference. Again, research is key.
3. Gold as money for cash management. Holding physical gold and silver is no different than holding a cash component. The Equity Income Portfolio is currently sitting on an equal allocation of physical and cash as I wait for higher cash flows from my dividend equities. Once I spend the cash, I will convert physical to fiat and reduce the position accordingly.
4. Explorers, the speculative play. While these are fun and usually investors’ first choice in the sector, these should be the last consideration of your strategy. These are not components of my two portfolios, as their exploratory nature disqualifies them as investments. However, having a small participation in five to seven of these could yield some very rewarding results. In this department Canaccord is by far the best firm I have had the pleasure to work under, having led more 40 deals over the last year, with a large percentage of these currently in the top quartile for exploration success around the world. However, I must again emphasize that only play money be allocated.

This strategy allows clients to benefit from the sector hedge, while avoiding the pitfalls of mining. Furthermore, working with a firm with a dedicated team in this area makes the process less risky.

TOP PICKS

KIRKLAND LAKE (KL TSX)

Kirkland is a gold producer in Canada and Australia. We have it as a “buy” with an $80 target. It has earnings leverage to the price of gold, growing dividend, low-cost producer with long mine life in geopolitically-safe areas. Mine life continues to expand with further exploration.

BEAR CREEK MINING (BCM TSXV)

Bear Creek is a silver developer/producer in Peru. We have it as a “speculative buy” with a $6 target. It has leverage to the price of silver, great jurisdiction and long mine life. One risk is execution on mine development, but this is offset by management experience.

NULEGACY GOLD (NUG TSXV)

NuLegacy is a gold explorer in the U.S. We have it as a “speculative buy” with a $0.25 target. Great exploration prospects in the Carlin Trend in Nevada and they have just received their plan of operation permit. Only speculative money should be allocated here as this is an exploration play. The Carlin Trend has yielded the U.S.’s best discoveries in the last 20 years.

PAST PICKS: NOV. 20, 2019

SANDSTORM GOLD (SSL TSX)

• Then: $9.08
• Now: $9.81
• Return: 8%
• Total return: 8%

AGNICO EAGLE MINES (AEM TSX)

• Then: $80.63
• Now: $105.40
• Return: 31%
• Total return: 32%

HARVEST EQUAL WEIGHT GLOBAL UTILITIES ETF (HUTL TSX)

• Then: $21.71
• Now: $17.09
• Return: -21%
• Total return: -15%

Total return average: 8%

TWITTER: @IJCarrasco
WEBSITE: www.canaccordgenuity.com