Funds that can turn your 401k golden

The forces driving gold to record heights look likely to be with us for a while. These funds can help you capitalize on rising gold prices. With video on gold investing.

By MSN Money Partner Apr 25, 2011 12:46PM

By Tom Taulli, InvestorPlace InvestorPlace logo


Gold has broken through the headline number of $1,500 per ounce, and though there will undoubtedly be short-term pullbacks, it's likely that expensive gold is here to stay.


Investors remain concerned about inflation, especially in China, as well as potential sovereign defaults in Europe, particularly Ireland and Spain. Such worries have driven up gold prices before, but now they are hitting new heights.


More significantly, there are worries about U.S. debt. The latest bombshell: In mid-April, Standard & Poor's put United States government debt on negative credit watch. This could ultimately lead to a downgrade of the nation's AAA credit rating from S&P.

So it should be no surprise that gold -- believed to be a strong hedge against the devaluation of a currency -- is rallying.


To participate in the gold trade, there are many options for individual investors, like mutual funds and exchange-traded funds (ETFs).


Post continues after video on gold investments:


Let's look at some of the standouts:


First Eagle Gold Fund

Even if a mutual fund has "gold" in its title, it's not necessarily a pure play. Often, the portfolio will include broad-based mining companies, such as those engaged in extracting silver or copper.


But in the case of the First Eagle Gold A (SGGDX) fund, the focus is mostly gold. It even has substantial holdings of bullion (which currently represents nearly 14% of the portfolio).


First Eagle has a bias for the larger operators. Top holdings include Goldcorp (GG), which has a market cap of $44 billion, and AngloGold Ashanti (AU), which has a market value of $19 billion.


Because of its focus on value, the fund tends to do better when gold is in the bear phase.



Caesar Bryan has a good feel for the gold market. Since the mid-1990s he has been the manager of the GAMCO Gold AAA (GOLDX) fund. So Bryan understands how to deal with tough markets. Consider that over the past 15 years, the fund has posted an annual average return of 9.3%.


A key part of Bryan's strategy is to look at companies with large proven reserves. The fact is that many miners have deposits that are getting thin. To boost production, there is usually no choice but to engage in acquisitions. This can certainly be dilutive for shareholders.


Van Eck Interational Investors Gold C
Joe Foster, manager of the Van Eck International Investors Gold C (IIGCX) fund, is a geologist. This is a big value-add, since analysis requires an understanding of the production capacity of mines. This can be especially helpful when investing in early-stage gold companies.


Foster's track record has been rock-solid. Over the past 10 years, the fund has produced average annual returns of 28.9%. The fund's expense ratio, though, is a hefty 1.95%.


SPDR Gold Shares
Some gold investors want the sense of security of owning bullion. This is expensive, though, as they need a vault as well as insurance.


But there is an alternative -- a physically-back exchange-traded fund. Essentially, this is a fund that buys gold bars and allows investors to get a piece of the ownership.


One of the top ETFs in the sector is the SPDR Gold Shares (GLD), which has $57.2 billion in assets. The fund stores its gold in London as part of a custody agreement with HSBC Bank.


The expense ratio is also fairly low, coming to 0.40%.


Market Vectors Gold Miners ETF

In many cases, an ETF is based on a basket of stocks. This provides diversification as well as good exposure to a market.

And, yes, there are ETFs that focus on gold companies, such as the Market Vectors Gold Miners (GDX) exchange-traded fund, which is based on the NYSE Arca Gold Miners Index (the minimum market cap is $100 million).


The top holdings include Barrick Gold (ABX)Goldcorp (GG), Newmont Mining (NEM) and Kinross Gold (KGC).


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