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Monthly Letter

Elements202202

AuAg Monthly Letter

February 2022 was the month when the world was drawn into war. A war in Europe where everyone will come out as losers. We hope that sensible world leaders can start thinking in logical and solution-oriented paths to stop the continued escalation. Writing about things such as stocks and currencies feels difficult and, to some extent, wrong when the world experiences such terrible events.

At the same time, our currencies, stocks, and commodities are highly affected and fluctuate a lot in value from day to day. It is a cocktail that involves energy supply and the entire banking system. Our funds have coped well in this turbulence, and you can read more about the respective funds and their returns via the links below.

We saw a slightly smaller net inflow in February compared to January, but still, positive figures, which is a continued sign of your beliefs. During the month, AuAg Silver Bullet and AuAg Precious Green were made available for purchase at the Nordic region's largest bank, Nordea. The funds are now buyable on Nordea's platform in Sweden, Norway, and Finland. Another highlight is that AuAg Gold Mining ETF now is listed on the Zürich stock exchange, SIX Swiss Exchange.

Don’t forget to explore our Research Centre where we collect the latest (and previous) articles, videos, and podcasts.

The Funds

Select fund below to get to the respective fund page. There you can see, among other things: how to invest, the new fund sheets, and live ticker price on the holdings.

Highlights

We wrote about the risk of war last month, and now it has arrived. The war in Ukraine overshadows everything else right now. We can only hope for de-escalation and that it does not lead to anything even worse. In addition to all human tragedies, it will have significant effects on the financial system and energy and commodity resources over a long time.

Even if someone "wins" in the end and we can return to a normal world, a lot of financial damage has already been made, which will require significantly increased stimulus and indebtedness to cover. It is impossible even to understand the extent of the impact on the financial system.

Before the war began, the Fed was offensive in its communication between meetings that interest rates will be raised, and then by 0.5% rather than 0.25% at the next meeting on 15-16 March. It has also been said that many more interest rate hikes will come during the year to stop the rampant and high inflation. This has continued to lead to problems for bonds issued by companies with lower ratings (high-yield/junk bonds) in the United States. The same issues will arise in Europe when the ECB is forced to raise interest rates in the future.

In the precious metals market, the companies that reported in February have shown very strong results and increased dividends. It is primarily the higher average prices of the raw materials that contribute. This is the beginning of a trend of higher dividends, share repurchases, and company acquisitions in a sector that has been undervalued for a long time.

Outlook

Here are some important factors that will affect the investment environment in the future.

FED and other central banks are now in a difficult situation. They must start raising interest rates so that inflation does not pick up speed even more, and at the same time, the timing couldn't be worse. Tightening right now when so much stimulus will be needed to counteract all the negative consequences of the war in Ukraine will be a tough challenge. A lot is at stake now.

After the gains on precious metals in February, the positioning on COMEX is now somewhat bearish regarding gold but still bullish when it comes to silver. During the month, gold set new all-time highs in several currencies such as EUR, YEN and SEK. With the current uncertainty in the financial system, the problems with commodity deliveries and the cost of financing everything that must be done now, we see an increased price picture for raw materials and tangible assets going forward.

Gold and silver are still historically cheap in relation to the S&P 500. The companies that extract the metals are also undervalued in relation to the metals themselves, which provides an interesting investment opportunity.

The Elements

This element of the month is copper. Copper is an essential material component of electric vehicles (EVs). It is used in electric motors, batteries, inverters, wiring, and charging stations because of its unique properties: durability, malleability, reliability, and superior electrical conductivity.

For example, a hybrid car needs around 40 kg copper and an EV around 80 kg, four times more than a standard combustion car. An electric bus contains more than 350 kg of copper. Copper is also an indispensable component of the infrastructure needed to support electric vehicle charging. To power the EVs of both today and tomorrow, just in the USA, a network of five million charging ports will be needed within the next decade.

As the world continues to move toward a sustainable and electrified future, copper has a significant role to play. The metal is used to increase the efficiency of numerous electrical technologies, from motors and transformers to solar and wind energy systems.

Copper is itself a sustainable material. It is 100 per cent recyclable and can be used and reused without losing its essential engineering qualities. In antiquity, Cyprus was famous for its copper resources. The very word copper is derived from the Greek name for the island, Kupros. As we say: "It's the Elements – it is all about their unique properties."

Research Centre

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AuAg Graphic