Citywire Selection watchlist: S&W Global Gold and Resources

Smith & Williamson Global Gold and Resources  fund co-manager Ani Markova has taken the fund's gold bullion exposure to its maximum weighting of 10% and has been moving into more defensive large cap names after a tough 2011.

Defensive large caps and bullion weighting increased

With a lot of small cap commodity names being sold off last summer in the flight to safety, the fund was hit hard and the duo have added to their largest and most liquid holdings. They have also increased exposure to potential growth areas such as heavy rare earth metals and diamonds.

Markova, who runs the fund alongside Bob Lyon, told Citywire Selection: 'When we saw the huge divergence between bullion and gold stocks we shifted the portfolio as we were not seeing a rebound in the price of gold stocks.'

The upshot was that over the last quarter the duo topped up their largest position, gold and silver bullion closed ended fund Central Fund of Canada (6.6% of the fund) after the fund's remit was changed last year to include bullion. Defensive large caps such as gold royalties firm Franco-Nevada, Canada's Goldcorp and South Africa's Barrick Gold were all added to. All three are top 10 positions.

The fund had 59% of its assets in gold miners at the end of March and uses a barbell approach to buying resource stocks. Currently some 40% of the £83 million portfolio is in large caps, 11% in mid caps. 10% directly held in bullion and the remainder is in small caps.

Markova told Citywire Selection: 'With this strategy we are trying to achieve greater liquidity and have good exposure to smaller stocks with strong growth prospects. We are a low turnover fund looking for mispricing opportunities and run a well diversified portfolio across market cap, companies and commodities.'

She added: 'Goldcorp is our top [listed] holding (4.1% of the fund) because they have large reserves and continue to outperform their peer group. Many of their projects are higher grade than their peers so they have stronger cashflow. It is forecast to grow its production from 2.5 million ounces to 4.8 million ounces over the next year'.

Markova said that royalty firm Franco Nevada had been increased to 2.9% of the fund as it was a low risk defensie play on the gold price.

'It is a royalty company so does not share the capital expenditure or operational risks of mining companies. It is a good defensive stock with strong cashflow.'