Return of the Resource Story

NOT MANY PROFESSIONAL investors anticipated the devastation 2008 would visit upon the markets, says The Gold Report.

But having done that, Malcolm Gissen and Marshall Berol started a no-load mutual fund – the Encompass Fund – in June 2006. Malcolm Gissen foundedMalcolm H. Gissen & Associates Inc., an investment advisory services firm, in 1985. Marshall Berol has been engaged since 1982 as an investment manager in San Francisco, CA, joining Gissen in 2000.

In this exclusive interview with The Gold Report, Malcolm and Marshall share why they believe "we're still in the early innings" of the resource investment game and foresee a bright future for the all-star junior miners.

The Gold Report: Malcolm and Marshall, you started the Encompass Fund in June of '06 with the intent of investing in a wide array of sectors, "to minimize or avoid sharp declines in the market," as it says on your site. However, according to your stock chart, you had a fairly dramatic decline in Q4 '08 with a pretty dramatic recovery since then. Tell us a bit about what happened there.

Malcolm Gissen: What happened was that prior to and in 2008 we emphasized resource companies in our portfolio, and we believed that these companies were performing well. We had confidence in management. In the case of the resource companies, many of them continued to expand their resources, in some cases, very substantially. So we felt we were pretty comfortable with holding these positions in our portfolio.

In the second half of 2008, a number of these companies experienced very sharp declines in their stock prices. We were alarmed, so we called the companies and asked if they knew what was going on. Their only explanation was that somebody was dumping a lot of their shares, which we, of course, could see in the market.

But it wasn't until very late in the year, when these companies spoke to and visited hedge funds, that the hedge funds would tell them that they had experienced a lot of liquidations and, as a result, were selling all of their resource company positions – and selling them as quickly as they could. In some cases, it was program trading. In other cases, they just dumped the stock. In the case of the junior mining companies, where the stock was generally thinly traded, it had a profound impact on stock prices when hundreds of thousands of shares or, in some cases, millions of shares, were unloaded in the marketplace, driving down the price of a number of these companies anywhere between 50% and 95%. When we saw that happen late in the year and realized the cause, as managers of the Encompass Fund, we decided we would buy more shares of some of the companies. We did that and that is one of the reasons the Encompass Fund has gained about 80% this year.