Funds increase exposure to silver firms abroad

With silver on a bull-run, companies mining the metal are attracting investment from India funds. The allocation for silver has doubled for funds investing in metals companies abroad in the last one year.

"We have doubled our allocation for silver in the last one year or so as prices are looking more and more attractive," said Joe Foster, portfolio manager, Van Eck Gold Funds, a fund from AIG Equity Fund Gold, which invests in gold, silver and platinum stocks.

Currently, the $200-million fund invests 85 per cent in gold mining stocks, 10 per cent in silver stocks and 5 per cent in the platinum stocks.

According to him, the primary reason behind the increasing preference for silver stocks is that the options have increased in recent times.

"Of late, the number of options or the investable silver companies have increased to 12. With the price band of $17-20 an ounce, companies can generate more cash flows and are better prepared to invest," Foster told Business Standard on the sidelines of the launch of the AIG World Gold Fund, which would be a feeder fund for Van Eck Gold Funds, on Wednesday.

Anup Maheshwari, executive vice-president (equities), DSP Merrill Lynch Fund Managers, said," Although there hasn't been any allocative shift in favour of silver, the increase in silver prices seen a considerable hike in the weightage of silver stocks.

"By and large, we have been bullish on precious metals like gold, silver and platinum. However, our allocation towards silver is likely to remain the same for the time being." He added that the focus of such funds was likely to remain towards the yellow metal.

"The main impediment for silver stocks is the lack of good companies to invest in. In two to three years, prices of the gold are likely to increase to $1,400 an ounce, hence the main driver for growth for this fund would be the gold mining companies," he added.

DSP World Gold Fund, which is the first such feeder fund to be launched in India, has 80 per cent allocation in gold mining stocks.

Meanwhile, the less volatile nature of the silver prices has increased its preference among the fund managers, feels RK Gupta, managing director of Taurus Asset Management Company.

"There has been an increasing pressure on gold prices as the marriage season is over coupled with its direct relation with crude prices, which makes the metal even more volatile. This is where silver stocks will present a better option," he added.