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.

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The Merk Hard Currency Fund is a no-load mutual fund that invests in a basket of hard currencies from countries with strong monetary policies assembled to protect against the depreciation of the U.S. dollar relative to other currencies. The Fund may serve as a valuable diversification component as it seeks to protect against a decline in the dollar while potentially mitigating stock market, credit and interest riskswith the ease of investing in a mutual fund. The Fund may be appropriate for you if you are pursuing a long-term goal with a hard currency component to your portfolio; are willing to tolerate the risks associated with investments in foreign currencies; or are looking for a way to potentially mitigate downside risk in or profit from a secular bear market. For more information on the Fund and to download a prospectus, please visit www.merkfund.com. Investors should consider the investment objectives, risks and charges and expenses of the Merk Hard Currency Fund carefully before investing. This and other information is in the prospectus, a copy of which may be obtained by visiting the Fund's website at www.merkfund.com or calling 866-MERK FUND. Please read the prospectus carefully before you invest. The Fund primarily invests in foreign currencies and as such, changes in currency exchange rates will affect the value of what the Fund owns and the price of the Funds shares. Investing in foreign instruments bears a greater risk than investing in domestic instruments for reasons such as volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. The Fund is subject to interest rate risk which is the risk that debt securities in the Funds portfolio will decline in value because of increases in market interest rates. As a non-diversified fund, the Fund will be subject to more investment risk and potential for volatility than a diversified fund because its portfolio may, at times, focus on a limited number of issuers. The Fund may also invest in derivative securities which can be volatile and involve various types and degrees of risk. For a more complete discussion of these and other Fund risks please refer to the Funds prospectus. The views in this article were those of Axel Merk as of the newsletter's publication date and may not reflect his views at any time thereafter. These views and opinions should not be construed as investment advice nor considered as an offer to sell or a solicitation of an offer to buy shares of any securities mentioned herein. Mr. Merk is the founder and president of Merk Investments LLC and is the portfolio manager for the Merk Hard Currency Fund. Foreside Fund Services, LLC, distributor.