HardAssetsInvestor

Mike Norman (Norman): Hello everybody, and welcome to HardAssetsInvestor.com. I’m Mike Norman, your host. My guest today is Malcolm Gissen. He’s the co-manager of the Encompass Fund. Malcolm, thanks very much for coming on the show. Appreciate it.

Malcolm Gissen, co-manager, Encompass Fund (Gissen): Great to be here.

Norman: Now, your fund is heavily invested in metals and commodities. It’s been one of the stellar performers against many, many funds. Tell us when you got started investing in this area, and how you’ve been so successful.

Gissen: Mike, we manage accounts for clients, individual accounts. And we’ve done that for about 20 years. We started the fund in 2006 because we realized that we were doing far better than most of the mutual funds we had been investing in. And in 2003, we made the call that commodities were going to do really well. And at that time, gold was below $300. And we felt there was great opportunity with what was going on in China, India, the emerging world.

Norman: So you saw this in 2003 as what would end up to be some big huge explosion in demand coming from emerging markets like China and India.

Gissen: Absolutely. And we felt that it would affect all commodities. So it would be any kind of energy. It would be all the metals. It would be agricultural products. And so we started putting resource companies into client portfolios. When we started the Encompass Fund in the summer of 2006, we immediately started loading the fund up with resource companies. And our investors were very well rewarded.

Norman: Now let me just backtrack a little bit because the bull market in metals and some of these other commodities … I think you could probably go back to 2001 or 2002 when we saw the start of that. But you kind of watched it for awhile, I guess, and got into it. And at that point, we had already seen some very decent appreciation in prices. But you felt it was still very early in the cycle. Correct?

Gissen: Absolutely. And we feel the cycle has longer to go. It’s not over yet.

Norman: How much longer?

Gissen: I’d say at least five to 10 more years.

Norman: Five to 10 more years from levels we are now?

Gissen: Yes. I’m comfortable saying that. Because I think we’re going to see continued enormous growth in these Third World nations and their economies. The demand for resources is almost unabated.

You see it in China, where people continue to move from rural areas to cities. They want a better life. They want consumer goods. They want cars. They need to build housing. All that infrastructure requires raw materials. And we’ve been investing in the companies that control, mine, expand and ship those raw materials to China.

Norman: Well, talk about the supply side. Because we’ve seen a tremendous amount of capital flow into the raw materials sector. There’s been a ramping up in production in many, many materials. So if you’re talking about the explosion in demand, you also have to talk about the increase in supply.

Gissen: Well, absolutely. And we do see that in some areas, in some metals. The supply may be getting ahead of demand.

Norman: How might that be?

Gissen: Well, copper prices have had just a great run. And we saw that a year and a half, two years ago and got into copper. And so we rotate among these metals. Uranium prices have risen tremendously in the last few months. We believe that has further to go because of the tremendous amount of development of nuclear power plants throughout the world.