Funds for a QE-fuelled gold rally
With many expecting a repeat of the 2009 and 2010 surge in the bullion price, FE Trustnet looks at three funds that could benefit from such a trend.
Last week’s announcement of further monetary stimulus in the UK, Europe and China is being viewed by many as a precursor to another spike in the gold price.
The debasing of currencies tends to bode well for the precious metal – as seen in 2009 and 2010 – and with many expecting the US to also employ another round of quantitative easing, the effect on both bullion and gold equities could be significant.
"Disappointing manufacturing and jobs data in the US last week showed that US economic activity is losing momentum, boosting the likelihood that the US Federal Reserve will introduce a further round of QE," said Martin Arnold, analyst at ETF Securities.
"While the relationship between gold and the dollar is not straightforward, following previous episodes of added liquidity, gold has strengthened."
Arnold says gold ETP holdings are currently at a record high, implying that investors in these products expect a significant surge in the price during the third and fourth quarters of this year.
Here are three very different options for investors who are optimistic about the gold price:
BlackRock Gold & General
FE Alpha Manager Evy Hambro’s
fund is by far the largest and most established of all the gold funds in the IMA unit trust and OEIC universe. Launched in 1988, it now has £2.45bn assets under management (AUM).
In the last 10 years, the fund has returned 294.79 per cent, making it one of the best performers across the entire industry. This compares with 399.44 per cent from the S&P GSCI Gold Spot index, which tracks the price of bullion.
Performance of fund vs index over 10-yrs
Source: FE Analytics
Other funds such as the mid cap-focused Smith & Williamson Global Gold & Resources
portfolio and CF Ruffer Baker Steel Gold have outperformed the price of bullion in recent years, but the BlackRock portfolio
remains the most proven option.
It is also less volatile than many of its rivals, and protected more effectively against the downside in 2008.
While Hambro holds a significant proportion of his assets in precious metals, the gold price isn’t directly correlated with the performance of the gold mining stocks he holds such as Newcrest Mining and Goldcorp, which are also sensitive to movements in equity markets.
This is reflected by the disconnect between the two asset classes in the last 18 months or so.
However, these companies could be set for a double whammy if equities also react favourably to the injection of cash into the system, as many did in 2009 and 2010. Over this 24-month period, BlackRock Gold & General delivered almost 100 per cent.
The portfolio has a minimum investment of £500 and a total expense ratio (TER) of 1.94 per cent. Hambro took over from industry icon Graham Birch in April 2009.
ETFS Physical Gold
For a straightforward play on the gold price, a physical gold ETF that tracks the price of bullion is the obvious choice.
Performance of fund vs index since launch
Source: FE Analytics
ETFS Physical Gold is backed by gold held by HSBC Bank USA, which means its tracking error tends to be very low after costs. Since its launch in June 2007, the portfolio has returned 209.39 per cent – just 8 per cent less than the S&P GSCI Gold Spot index.
The product has a TER of 0.39 per cent and, because it is traded on the stock exchange, has no minimum investment. It currently has $7bn AUM and is the staple choice of fund managers who want exposure to bullion.
JPM Natural Resources
For investors who are positive on gold but want to diversify their risk across the commodities market, Neil Gregson’s JPM Natural Resources
could be a good bet.
Like BlackRock Gold & General it is a large, well established portfolio with a long track record. Gregson took over from Ian Henderson at the beginning of the year, but has been deputy on the fund since 2010.
According to FE data, the fund has 30.2 per cent of its assets in gold and gold equities. Gregson has significant exposure to large, multi-industry companies such as Rio Tinto, BHP Billiton and Anglo American, which gives the portfolio greater stability.
JPM Natural Resources has returned 344.01 per cent in the last 10 years, compared with 293.21 per cent from its HSBC Gold, Mining and Energy index. It is significantly less volatile than the likes of BlackRock Gold & General, though it lost far more in 2008.
Gregson's portfolio has a minimum investment of £1,000 and a TER of 1.68 per cent.