New mining funds are appearing in London, but it is a wonder they have waited this long judging by the performance of Merrill Lynchs two giants. The Merrill Lynch International Investment World Gold Fund started this year with a value of US$613 million and has more than doubled to US$1.5 billion in the nine months. Evy Hambro who runs it also points out that it was only worth US$47.4 million at the beginning of 2002. Over the same periods the Merrill Lynch Gold and General Fund has put up a similar performance and now stands at US$500 million. It is drawing in funds of up to US$2 million a day which says something for the way gold has found its way into the hearts of investors again.

Earlier this year Richard Lockwood, long a personality on Londons mining scene, was behind a move to change Aberdeen Latin American Investment Trust into City Natural Resources High Yield Trust. Investor sentiment towards closed ended funds in Latin America was poor and the shares were fairly illiquid, so it made sense to liquidate and put the funds under the management of Midas Capital Partners whose remit was to provide shareholders with capital growth and income from a portfolio of shares and fixed interest securities in mining and resource companies. It is early days, but the new fund has already raised around 25 million since it came into being in June and investors will appreciate the emphasis on income which should ensure a dividend. The policy will be to pay these quarterly, starting in February 2004, and the estimated initial annual yield is put at 5 per cent based on the net asset value per share.

For some time now RAB Capital, run by Philip Richards, has been very active on the mining scene, though only a comparatively small portion of the US$1 billion under management is in resource stocks. The investment policy is a bit different as it is managed very proactively by someone with the mind set of an old fashioned jobber which is not surprising as Richards and his partner Michael Alen-Buckley were with Smith New Court before setting up RAB in 1999. This mind set means that Richards is willing to take big positions, but is always ready to take a profit or cut a loss. Towards the end of last year significant positions were taken in Oxus Gold and Celtic Resources which have been two of the best performers in the AIM market this year. Considerable profits have been taken, though RAB is still a shareholder in both.

Two other successes on the IPO front are Caledon Resources which is a thirteen bagger and Gold Mines Of Algeria which has trebled since April. At the end of August Richards took a major slice of placings by Griffin Mining and African Eagle and last week took a dive into Cambridge Minerals. He rationalises his investment policy by saying that he buys a stock when it is out of favour and sells when a queue has formed to buy. Life is never that easy, as he will readily admit, but he certainly got into the junior resource sector at the right time. Unfortunately the nanny state categorises his funds as hedge funds which are deemed to be too volatile for private investors so they are not allowed to participate. The patronising attitude of these regulatory people is beyond belief and one can only surmise that their role in life is to remove every element or risk. Have they never heard of the risk/reward ratio?

Presumably they will approve of the new funds being launched by First State and CF Ruffer Baker Steel, though Martin Currie will be in problems. This 122 year old Edinburgh investment house is putting its toe very gingerly in the mining sector with a 12 million fund. It looks as if this will qualify as a hedge fund as it is not only investing in equities, but also in commodities through futures markets. Such a policy makes a lot of sense and Martin Currie has had a fair amount of success in resource stocks this year, but futures markets are considered beyond the pale for private investors. The Australian fund manager First State Investments, which is owned by the Commonwealth Bank of Australia, has side stepped the issue with its proposed gold resources fund which it will be marketing to UK and European retail investors by the end of the year.

Then there is the new gold fund from the Ruffer Investment Management stable which is being managed by Baker Steel Capital Managers and is to be marketed direct to private investors. David Baker and Trevor Steel learned the business from the late Julian Baring so they are fully aware of the danger of lobster pot investments as they seek to buy gold in the ground much more cheaply than in the market. Hedging tends to be anathema to them and they use well tried and proven mine and company analysis models. Another old hand in the mining world, David Hutchins, manages the Resources Investment Trust, which was launched at the end of last year. As with all closed end funds its shares stand at a discount to net assets, but in the case of ReIT the discount is around 33 per cent compared with the industry average of 15 per cent.

Presumably this differential derives from the extra risk ascribed to mining stocks, but David Hutchins points to lack of competition as 15 years ago there were something like 30 specialist mining funds in London. How long it will be before that is equalled is impossible to say, but the flow of new funds is encouraging.