AIG Invsts still overweight on emerging markets

AIG Investments has announced the launch of AIG World Gold Fund

Thomas Lips, Chief Investment Officer of AIG Private Bank is overweight on emerging markets though he expects India & China to remain in correction mode. He adds that significant correction can be expected if inflation worries persist and feels that global markets may see 10-15% corrections soon.

Joseph M Foster, Portfolio Manager Of Van ECK International is a feeder fund from AIG Equity Fund Gold which has been trading since 1992 and has very well established track record in this fund. He expects gold to trade in a range of USD 850-950, maybe even turning sideways for a while, as the market consolidates and adjusts to higher prices. "Once that consolidation phase is over, I think we are poised to see higher prices as we move into year-end." he adds.

Excerpts from the exclusive inetrview with Thomas Lips and Joseph M Foster:

Q: Do you think there is some more pain in the system or is the worst pretty much behind us?

Lips: It looks like the global markets are trying to find a bottom, lately horrible news from US and the like has not really dragged down the prices, so there is some hope that the worse is over, you can never be sure, these times the Central Banks have to manage the situation carefully and rightfully otherwise, we are in for some more risks but for the time being, the markets look less shaky then in the past few weeks.

Q: The world right now is grappling with inflation fears and India is no exception to that with the rest of Asia, Europe and the US at this point of time, if the concerns were to linger on much longer from here on, how much that you think that the global equity markets could actually see from the downside of current levels?

Lips: Currently, you have more in Europe and in the US, you have more fear that the economy is falling out of bed whereas in Asia, clearly there is inflation on the rise. If the Central Bank with all these liquidity they created cannot come to grips within the due time once the financial season has found its stability again, then I think inflation could really become a topic and if inflation comes back more substantially, then I think it is not going to be good for equity markets. They might be in for a more severe correction even from where we are right now because that’s going to be very different environments then what we had in the last 20 years.

Q: Talk a little bit about your gold fund that you've just launched. One remembers the days when Merrill Lynch was one of the first ones to launch a fund like this and they had a tremendous response and returns. What sort of returns are you expecting and what are the features of your fund?

Joseph Foster: The fund is a Feeder Fund. It is from AIG Equity Fund Gold, which has been trading since 1992. So, we have a very well established track record in this fund. Our performance has been very good throughout this cycle. So, I expect to see continued good performance from the fund. We invest in gold mining stocks, some silver stocks, some platinum stocks. But the focus right now is pretty much on gold and through our stock picking I think we can generate some very attractive returns in this bull market.

Q: Of course gold has come down significantly from the highs that it saw at about USD 1,035 per oz or thereabouts. What is your own call with this entire dollar depreciation theme that is unfolding and what is the range that you see gold in say from a six to 12-month horizon?

Foster: Six to 12 months, we are in a phase of consolidation and that has been a feature of this market. We advance, consolidate, advance again and consolidate. So, we are in consolidation mode. We have seen this before. I would expect for gold to trade in a range of USD 850-950, somewhere in that level, maybe even turning sideways for a while, as the market consolidates and adjusts to higher prices. Once that consolidation phase is over, I think we are poised to see higher prices as we move into year-end.

Q: How big really is the market for a fund like yours?

Foster: If you look at the money that has gone into gold ETFs, gold equity funds and even also gold equity ETFs that are emerging, there is a lot of capacity for additional funds in this sector. There is more interest and more liquidity coming into these gold mining stocks with increased interest in the gold shares.

Q: You said if inflation does not contain itself that equities globally could in for a much further rough ride. Can you make a case for more than a 10% correction globally for equities at this point?

Lips: I think as inflation passes some trigger point, it could really become problem for the stock market. One can show that statistically in an environment of 6% inflation of course the PEs, you have the contraction and the PEs probably some of it is already in the mortgage because valuation wise the stock market does not look very expensive at all; it looks quite attractive. But I think a 10% to 15% correction from where we are that could be easily in the course. 

Q: How significantly has investments particularly in Gold has increased on a YoY basis, when you look at 2007 and compare it to 2006?

Foster: That’s a difficult measure but it is one of the tools we used to measure because its somewhat opaque market but if we look at the gold ETF, the flows into that fund have been very substantial, I don’t have the number, but we have seen enough information’s that the gold ETF to make it if it were a Central Bank, it would be the 7th largest bank in the world over 800 tons in the gold ETFs, so that’s an indication that we have seen very heavy inflows into gold for investment purposes.

Q: Do you think that the US is already in recession or there is a significant chance of it contracting into a negative growth this year?

Lips: What we know right now, is that we have substantial slowdowns, if you are in a recession or not, you don’t even know that in the aftermath of the recession at times we have revisions which show you that there wasn’t a recession. I think economic growth pretty much has disappeared and of course the risks are rather on the down side then on the upside right now.

For more Mutual Fund Interviews click here