NEW YORK Returns on precious metal funds have posted the most sizable gains for any industry group in the last 10 years at 23.81 percent, despite showing the third worst performance for 2011, according to the latest data from Lipper released on Friday.
"Precious metals was the absolute strongest classification performer in the five- and 10-year period of all equity fund classifications," said Tom Roseen, senior analyst at Lipper, a Thomson Reuters company that provides mutual fund data and analysis.
This week's slide in gold prices, as investors sold off many assets for cash in the aftermath of Japan's earthquake, and the downturn in January contributed to the group's losses so far this year.
For the three months ended March 17, Lipper Precious Metals Funds lost 4.57 percent and fell 8.11 percent for 2011.
For the year through March 17, however, the precious metals classification returned 30.84 percent, Lipper data shows.
Annual returns have also been sizable for the precious metals fund classification during the 5- and 10-year time frame, at 14.46 percent and 23.81 percent, respectively.
"Precious metals have had a very good run. It's hard to ignore that they had a phenomenal run," said Roseen.
Even three-year returns, though seemingly modest, were still better in the precious metals classification than most other categories, giving 9.92 percent annual gains. The period captures the sharpest downturn of the recent recession.
"It includes 2008, which was a horrible year, one of the worst years we had since the great depression. It impacted three-year returns for a whole bunch of folks. Some funds were down over 60 percent," the analyst said.
Roseen added a warning note. While precious metals have been one of the strongest performers, he advised using caution, as prices can fall quickly.
Most mutual funds in Lipper's precious metals group invest in mining stocks rather than the metal, with Barrick Gold Corp (ABX.TO), Newcrest Mining Ltd (NCM.AX) and Kinross Gold (K.TO) the mostly widely held.
"When you get down to brass tacks, it really is the miners they're invested in, not the physical metal," said Roseen.
Prices of mining shares often closely track the metal price, however, especially now that large mining companies are no longer hedging their metal positions forward.
The precious metals category is the largest classification in Lipper's sector equity funds grouping, outweighing real estate, science and technology, and even commodity funds.
A breakdown of the latest monthly data for February shows that mutual funds and exchange-traded funds, or ETFs, invest differently in commodities and precious metal funds.
Generally, investors prefer using ETFs for precious metals, not commodities. While the mutual fund industry tends to invest in the miners, ETFs favor the metal itself.
"I think that's why we're seeing a move for people to put more money into the ETFs than into mutual funds," said Roseen.
At the same time, investors seem to be using mutual funds for exposure to commodities overall, because they are unfamiliar with specific demand fundamentals.
Commodity funds tend to use futures contracts or a physical material, like energy, metals or grains, but not equities.
One-year inflows have been strong through February 28, with mutual funds pouring $15.74 billion into commodity funds compared with ETF inflows of $4.76 billion in the same period.
Combined mutual fund and ETF investment into commodity funds hit $20.5 billion over the last year. Commodities made up close to 75 percent of net new money coming into the mutual fund arena. Precious metals were the second biggest draw.
(Reporting by Carole Vaporean; editing by Rob Wilson )