Q&A With Mr. Dan Pembleton

Mr. Pembleton, MBA, CFA is the founder & President of Accilent Capital and is registered as a Portfolio Manager, Investment Fund Manager and Commodity Trading Manager.

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Dan, why do you think that investing in the Canadian natural resource sector will be a good spot for investor monies in the years ahead?

Gold and precious metals have recently entered a new bull market. I will share what I wrote in April of 2019 in an investor update, when gold was $1250.00/oz, it is now $1950.00/oz. I wrote:

With the Fed’s first meeting in 2019 they did what is the equivalent of a full stop on the interest rate tightening path they began in December 2015. This was a significant departure from what they had been communicating. As recently as September 2018, they were expecting to take rates as high as 3.5% or higher. This significant pause has had repercussions globally. Now, central banks around the world, except for a very few in developing countries which are struggling with inflation, are on hold and/or are expected to be cutting rates soon. How does this affect gold? The mechanism is through the bond markets. This occurs because gold, very simply, is an asset which pays no interest, yet its value is intrinsic, meaning it depends on nothing else for its value. This is unlike other financial assets which depend on someone paying you money for your asset such as a bond’s interest payments or maturity payment in cash. This makes gold similar to the highest rated bonds (no repayment risk with gold), but it pays no interest. When all the central banks have stopped tightening i.e. raising interest rates, bond investors have an increased incentive to “lock-in” their interest rates by buying bonds. This has the effect of lowering interest rates for these bonds. Lower interest rates decrease the opportunity cost of buying and holding gold. Remember, gold pays you nothing to hold onto it, so the opportunity cost for gold is interest that you give up by not holding a bond instead. What has happened since the Fed signaled it would not raise rates anymore in 2019 and would stop reducing its balance sheet, another form of monetary tightening, bonds in general globally have risen in price, driving their yields, the effective interest rate they pay, lower. This move has been so significant that there are now $10 trillion in bonds globally that yield a negative effective interest rate, meaning that at the end of the term of the bond you have less money than you had at the beginning – “negative nominal interest rates” is the term for this. This is even ignoring inflation which further reduces your purchasing power making the bond investment an even worse investment – “negative real interest rates” is the term to describe this. There are many reasons someone would wish to do this but suffice to say that none of those reasons imply particularly good times economically.

All the reasons outlined above are still valid, and even more so now, which is very good for gold. This is a long-term structural feature of the global economy now and it will feed into the gold price for years to come. There are a few other reasons why Natural Resource investing in non-precious metals will also be successful for many years to come. The following examples are taken from the McKinsey Global Institute quarterly report of November 2011 “A New Era For Commodities”. While China’s growth has slowed in recent years since that report, India’s growth has accelerated. The effect of COVID will be to slow the global economy temporarily. However, the coordinated global efforts to reflate all economies make the below points just as valid in a reasonable investment time horizon as they were in 2011, the year of the original article.

Some interesting points from the article.

• Demand for energy, food, metals, and water should rise inexorably as 3 billion new middle-class consumers emerge in the next two decades.

  
  

• The global car fleet…is expected to almost double to 1.7 billion by 2030.

  
  

• China… could annually add floor space totaling 2.5 times the entire residential and commercial square feet of Chicago, while India could add space equal to another Chicago each year.

How does this relate to how you built the fund?

So, what is the basic structure of the fund?

Ok, then what are the tactics and methods?

Sounds good. How do you go about evaluating individual stocks?

So, where do you source out these specific deals?

I have heard you say many times that the Pavilion fund will stay relatively small in comparison to some other FT funds in Canada. Why is that?

Dan, can you recap for me how you pull all this together to create the environment for a successful fund?

Thank you Dan for your candid replies. Last question. This is 2020 and you have brought 17 Pavilion FT Funds to the investing public since 2008. I have to ask, straight up, how have you and the funds performed?

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Updates

As of 2025, Pavilion has launched it's 23rd offering, and is celebrating its 17th year of operation