The Big Picture for the Week of May 13

The other day I stumbled across an article about the dividend yields for four gold mining stocks including Anglo Gold Ashanti (AU). Before the SPDR Gold Trust (GLD) came along we used AU for our gold exposure. It did ok and then starting in late 2005 in started skyrocketing and we sold it in February 2006 and swapped it share for share into GLD which we've held ever since (we did sell a chunk of GLD last August).

Historically there have been times where the metal outperforms the miners and vice versa. There were rotations between the metal and the miners and back again for this particular trade and every so often you would hear or read someone explaining how this worked. The sale of AU came after a period of miner outperformance and the swap at the time seemed obvious but I had no real expectation of being able to time it again.

Since early 2006 though this relationship seems to no longer exist. Since we sold AU it is down 38% and GLD is up 181%. Newmont Mining (NEM) has done a little better than AU dropping only 18%. The Market Vectors Gold Miner ETF (GDX) started trading a couple of months after selling AU and since its inception it is only up 11%.

Either the relationship between the miners and the metal has actually changed or this is a prolonged period were the miners are lagging (the YTD numbers are not good for the miners either). It also appears as though AU is a completely different type of stock than it used to be. Google Finance reports its beta at 0.61 and the yield at 3.1%. The above linked article quotes the yield at 3.27% but dividend.com says 1.44%. As I look at the historical price page on Yahoo Finance and applying the dividends only sort I see three dividends in the trailing 12 months adding up to $0.495 consistent with the yield quoted at dividend.com.

If it really yields 3% then that really is a big change from when we owned it and just looking at a long term chart leads me to think the beta is correct. While I am not certain what the beta was six years ago it was well above 1.00. In past posts I've talked about stocks' attributes changing as a reason to consider selling and although this was not a reason for selling AU when we did it is a good example of what appears to have been a meaningful transformation.

Generically speaking there is of course room for a low beta, high yielding stock in a portfolio but expecting high octane and getting something else can work to a portfolio's detriment.