IMHO, the main downside to most Mutual Funds come from your fellow shareholders. When the fund does well, money flows in, and the Fund manager is faced with either sitting on the new cash, or investing it when the market value of the fund holdings are *high*. When the fund does poorly, the redemption requests flood in, and once the cash reserves are exhausted, the Fund manager is faced with the option of either selling a lot of the downtrodden holdings (and thereby locking in losses) or selling the few remaining standout performers (and thereby shifting the composition of the fund to mainly losers). In short, the mass of retail investors put money in and pull it out in a fashion that promotes buying high and selling low; not the best thing when trying to generate good returns.

When you add the need to try and hold a percentage of invested money in cash (5%-15%) ongoing to deal with liquidity issues, it is very easy to see how/why mutual funds generally under perform the market and their specific sectors.

You and I are at least partially to blame. But I feel that we should be aware of these aspects of mutual funds, and show some forbearance. The market peak / crash that we've had over the last 2 years is one of the largest in history, and the purchase/redemption pressure has taken a heavy toll on almost every mutual fund.


That's not to say this particular fund is completely fault free. The manager made a decision to move heavily into platinum during the summer/fall of '08, and it took time for the realization that the auto industry (principal user of platinum) might have experienced a permanent decline rather than a short term retrace. The manager is moving back into gold/silver, but the damage has been done, and expecting the fund to recover it's original ratio to the price of gold may be unrealistic.

If you are looking for broad base exposure to gold/silver miners, you might want to research the GDX ETF, which doesn't have quite the level of redemption/purchase issues associated with open ended mutual funds. Both GDX and MIDSX show leverage to gold (1% move in the metal typically associates to a larger move in the funds), and lag (gold generally leads the miners, and the metal/miner ratio fluctuates over time within a range).

A comparison chart of GLD (proxy for gold) vs MIDSX vs GDX shows GDX weathering the downturn better than MIDSX over the last 1-2 years, but MIDSX has been outperforming GDX year to date (1-mo, 3-mo & 6-mo). So if you are looking for the leverage, MIDSX may prove to be a better option to hold onto, rather than jumping ship in disgust.

GL in your investing.