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Current Investment Landscape

Today’s investment landscape offers investors wide range of low fee and liquid investment products across geographies, sectors and investment styles. As a result, money has understandably moved from active to passive managers. When this idea was popularised by Vanguard decades ago, it was almost a free rider approach for avoiding management fees. Active fund managers were busy selecting investments and allocating capital for a certain fee and were forming the market prices. Initially the passive investment idea was, why pay fees when the market has already determined values via its collective wisdom? Why not simply allocate capital based on the existing market-caps?
What made good sense at the beginning has turned into a vicious cycle over time. As passive investing started to get more of the capital pie, its reliance on active managers’ valuation decreased. It turned into a system where higher market-cap companies got more of the funds available and became even bigger and more expensive based on accounting metrics. One of the key factors for any stock to gain share price performance became getting a larger share in large sized passive investment funds. The investment game became less of creating value through earnings and cash-flow, and more of selling a story to create a strong market-cap and get automatic investment and grow even larger.
This has been a market that is tough to operate for value investors. The fact that one found a cheap stock in many cases meant, the stock would get less passive fund flows and become cheaper over time.

 

How Would Active Management Pay-off?

Given the context described above, we at Kings Road Capital ask the question. “How can an active manager add value to wealth management in today’s context?” After all we know that when there is active management, there needs to be higher fees. Why should an investor consider paying higher fees when there are options to get a similar exposure to most investment themes via passive investment?
We believe the answer lies in the core competence of the investment manager and the investment product. Specialized skill sets would still add value to a portfolio by tracking inefficiencies or mispricings in the overall market. The value-add can be attained via a sector specialisation, a proprietary trading structure that has a good return expectation vs. risk over time and/or an ability to create a diversified investment product not available through passive funds.

 

What sets us apart?

Kings Road Capital's management arm was established in 2011 servicing managed accounts. The following year the firm started managing its first hedge fund. The fund is specialised in small to mid-cap mining companies. These companies cover a wide range of activities from exploration, development, production to buying and creating royalty portfolios. Most of the companies of focus are in the gold space. A small segment of the precious metal companies in the portfolio have silver, platinum or palladium projects.
Although the fund can be classified as a junior gold mining company fund due to the weight of these investments, some base metal and energy companies are also included in the portfolio.
Apart from the fund’s sector specialisation, we also developed proprietary trading structures for market timing on the companies of interest. Our in-house developed software filters price pressures and technical trends on stocks assisting the development of thousands of trades the fund engages in every year.
Lastly, the fund opens up a sector for investors that is not available through passive investment vehicles. Success in this segment requires a strong understanding of each company’s management teams, geological premises of projects, social and environmental matters and financing risks. Our track record clearly indicates that Kings Road Capital possesses the required ingredients to succeed in its chosen focus.

 

Gold's Role in Wealth Management

Gold has been the money of choice accross cultures through human history. Gold's chemical characteristics and its scarcity in earth's crust made it by far the best physical object to be used as money. Since gold can not be created by government fiat, the quantity of gold increases by a very limited extend every year vs. the existing gold stock. This factor has been the key reason for gold to protect its purchasing power for thousands of years.
Moreover, if gold is held securily, it becomes the ideal liquid vehicle to preserve wealth outside the banking system.
At Kings Road Capital, we view gold as a necessary asset within any well structured portfolio due to its ability to protect certain systematic risks and its ability to give investors an uncorrelated performance that can perform in highly inflationary and deflationary macro outcomes.

 

Our Goal

Kings Road Capital's goal is to be the best investment vehicle in the gold space and its long term track record places it to be a good candidate to achieve this goal.

We believe that as long as we display an outstanding alpha (outperformance against our benchmarks) even investors that are uninterested in gold would find value in our offerings as a portfolio return booster.