Emma Wall: Hello, and welcome to the Morningstar series, "Why Should I Invest With You?" I'm Emma Wall and I'm joined today by Ned Naylor-Leyland, Manager of the Old Mutual Gold & Silver Fund.

Hello, Ned.

Ned Naylor-Leyland: Hello.

Wall: So, gold, a big part of your portfolio. It's in the fund's name. It's the question all investors want to ask you, what is your prediction for the gold price?

Naylor-Leyland: Well, I'm usually a bit loath to give a specific prediction. But I think that – I think we are back in a bull market. And if you look at the last 20 years as a guide, then when gold is going up, it usually goes up low double-digits per year. So, I don't know, 10% to 15% per year. So, I suppose on that basis you could look at maybe $1,450, potentially even $1,500 an ounce within the next 12 months wouldn't be an unreasonable target. And equally, if that's true, then silver potentially could go up a bit more than that.

Wall: And what is it about this particular market environment that's supportive for those precious metal prices?

Naylor-Leyland: Yeah. It's always about the trajectory of real interest rates. So, the relationship between inflation and rates. So, I suppose what would drive that would be something reducing the likelihood of three interest rate hikes over the next 12 months. So, that might be lower equities or geopolitical risk. Anything that led the Fed to not be able to do the three hikes that are currently priced in.

Wall: And of course, those two things are not unnecessarily going to happen, are they? I mean, the fact that equities are at all-times highs and the fact that there's increasing macro risk, how do you balance these unknowns with making investment decisions?

Naylor-Leyland: Well, I suppose for a portfolio manager you don't necessarily have to do that. I mean, my mandate is to be invested. So, I'm going to be invested. I'm going to be in gold and silver equities and bullion anyway. I don't factor those things in. When I'm going to answer your questions though, I'm thinking about what will drive a material change for the gold price, and those are the things that come into potentially changing people's views. But for me, I'm investing, I'm in, and I'm positioned.

Wall: And talking about the portfolio, talking about how you are playing that sort of stronger fundamentals for gold, I think it's really interesting we were talking before the cameras started rolling about where you are geographically invested. And you are quite selective about that, aren't you?

Naylor-Leyland: Yeah, I think, it's important to narrow the universe. I don't want to have an investable universe of 400 stocks. It's way too much heavy lifting in terms of analysis to do that. So, what we do is, we say, look, where is the least geopolitically risky place to invest in gold and silver mining. And so, for us, that's the Americas and Australia. It's particularly good for me to do that because about half the portfolio is invested in silver and most silver production comes from the Americas anyway. So, I don't really need to be in Africa. So, we cut that completely out of the portfolio. We cut out Central Asia, Russia and try and narrow in on places where gold and silver mining is done and has a good track record.

Wall: And that plays into something which we are hearing increasingly is important for individual investors and that's ESG factors. You say that you can have a better idea about how these mines and how these companies are operated in those particular markets?

Naylor-Leyland: That's true. I mean, with mining, ESG and mining are naturally interwoven. So, when I get asked questions about ESG and mining, I think my responses are different to other sectors, because inherently it's integral to being able to successfully produce gold and silver. If you are not dealing with ESG, you are going to have problems. So, it's absolutely, as I say, integral to the process anyway. But yeah, you want to take that very seriously and as I say, reduce the potential problems by narrowing down to places where the operating environment is cleaner and better-run.

Wall: You therefore are invested in US equities. How much of the macro of the US play into the considerations that you have investing in U.S. equities?

Naylor-Leyland: Well, look, when you say US equities, I mean, I do invest in stocks that are listed in the US and I have some companies in the portfolio which have assets in the US, too. But overall, if you are thinking about the US pertaining to our portfolio, actually the most important thing is, just simply the relationship of the dollar to other commodity currencies like the Mexican peso, the Canadian dollar, Aussie dollar, because a lot of the stocks that we own have mines in those countries. So, in fact, there's FX risk between the dollar and those places and that's really probably more what I'm thinking about. Other considerations through the US probably don't come into it that much.

Wall: Ned, thank you very much.

Naylor-Leyland: My pleasure.

Wall: This is Emma Wall for Morningstar. Thank you for watching.