Fontaine Global Growth Fund has returned 64 percent so far in 1996 by making an unconventional bet on oil and minerals.
“We are heavily postured toward emerging natural resource companies around the world,” said Richard Fontaine, head of Richard Fontaine Associates in Baltimore and manager of the $2 million global growth fund.
An almost 80 percent commitment to natural resources - including gold, copper, zinc, diamond and oil exploration companies - is an unusual bet for a global fund. This year, however, it’s pushed Fontaine’s fund to the top of the global fund heap, according to Lipper Analytical Services Inc.
Fontaine Global Growth, which was launched four years ago, has always had a bias toward natural resources, but Fontaine’s wager is particularly profitable this year.
Gold prices rose to $417 an ounce in early February, a five year high, before falling to $388 Friday. The price drop hasn’t dampened gold mining stocks, which have continued their to ascent all year. That’s helped the fund to return almost six times the average for the 160 global funds tracked by Lipper.
Crude oil prices also jumped earlier this year, shooting to five year highs above $25 a barrel during April. The price rise helped send oil stocks higher. Crude oil fell to $19.70 a barrel on the New York Mercantile Friday.
Fontaine views the recent fall in oil and gold prices as short-term dips. The Federal Reserve was too lax when it cut interest rates three times since July 1995, he said, and we’ll pay for the cuts in higher prices.
Fontaine reckons that the U.S. rate of inflation could jump to between 4 percent and 5 percent in the next 12 months, and that will push interest rates on the benchmark 30-year Treasury bonds closer to 8 percent over next 12 months, from 6.95 percent today.
That’s a contrarian opinion.
Federal Reserve Bank President Thomas M. Hoenig said today the threat of accelerating inflation this year and next appears “unlikely.” He added that “price shocks” from recent surge in food and energy costs are temporary.
He’s also optimistic about oil stocks, as are other analysts. Fontaine has 10 percent of his portfolio in oil, including British Petroleum Co., Pennzoil Co., Exxon Corp., Mobil Corp. and Texaco Inc.