ASA: Precious metal miners at a discount attracts Saba

Among precious metals funds, NYSE:ASA, a +$300 million closed-end fund investing in gold and precious metals since 1958, is truly unique. Now activist investor Saba threatens to replace ASA’s board and potentially repurpose the fund. If Saba succeeds in taking control of ASA, I believe it will be detrimental not only for ASA shareholders, but also for the companies ASA invests in and the gold mining sector. ASA’s fate matters regardless of whether you are a shareholder.

Precious metals investments vary

Precious metals investments have different risk profiles depending on whether you invest, say, in physical gold, large producers, royalty companies or exploration and development companies. ASA, unlike a mutual fund or ETF, doesn't accept new money, nor can investors redeem their investment at net asset value. Instead, the shares trade on the NYSE and investors buy and sell the shares on the secondary market. Free from daily in-flows and outflows, ASA can invest for the long term, often in what are illiquid securities. That's precisely what we've done since shareholders approved Merk as the portfolio manager of ASA in April 2019: shifting the fund’s portfolio into small cap mining companies that today comprise over 70% of ASA's assets.

When the precious metal sector took off in late 2019 and the following year, ASA substantially outperformed. Subsequently, the Federal Reserve's "higher for longer" environment provided a headwind. Unsurprisingly, since Fed Chair Powell signaled ending "higher for longer" last fall, share prices of junior mining company share prices started performing favorably again.[1] Overall, ASA has outperformed the major gold mining ETFs since April 2019. From April 2019 through February 2024, ASA's performance was close to its benchmark, the NYSE Arca Gold Miners Total Return Index (the “Index”), with both its Net Asset Value (NAV) and share price increasing by approximately 43%. In comparison, the gold miner ETF GDX had a total return of 32.67%, and the junior gold miner ETF GDXJ had a total return of 12.09% during the same period.