If, like a number of high-profile fund managers, you think we are set for another global recession, an increased weighting to gold is an option worth considering. From 8 August 2007 when credit markets froze, to the start of March 2009 when markets bottomed out, the S&P Gold Spot rose by 96.42 per cent; during the same period, the FTSE All Share lost 38.08 per cent.
Investors can invest in the physical asset, or track the gold price using an ETF. However, if you are a looking for a more hedged investment, you could invest in a gold fund. These vehicles invest in a mixture of physical gold, gold equities, and other precious metals such as silver and palladium.
There are seven pure gold funds in the IMA unit trust and OEIC universe, but by far the largest and most high profile is the £3.05bn BlackRock Gold & General fund.
BlackRock Gold & General was previously managed by Graham Birch, but is now under the supervision of Evy Hambro. The fund has returned 53.24 per cent since Hambro took over in April 2007.
According to FE Analytics data, it has returned in excess of 800 per cent since it was launched into the retail market in January 1995. No open-ended fund – regardless of sector – has returned more than this figure since its inception.
Performance of fund vs index since launch
Source: FE Analytics
The FTSE All Share has returned 228.71 per cent during this period.
However, these returns have come at a price. The fund is one of the most volatile funds of any kind in the long-term – only Baring Korea has been a riskier investment since 1995.
The launch of gold funds in recent years has provided BlackRock Gold & General with some stiff competition. Over a five-year period, Smith & Williamson Global Gold & Resources is the best-performing gold fund, with returns of 142.18 per cent.
In the last three years, CF Ruffer Baker Steel Gold has also outperformed Blackrock Gold & General, and a number of gold funds have better one-year returns.
Performance of funds over 10-yrs
| Name |
1-yr returns (%) |
3-yr returns (%) |
5-yr returns (%) |
10-yr returns (%) |
| BlackRock Gold & General |
16.9 |
85.8 |
132.7 |
864.3 |
| Smith & Williamson Global Gold & Resources |
20.1 |
125.6 |
142.2 |
N/A |
| Investec Global Gold |
15.1 |
79.6 |
123.8 |
N/A |
| CF Ruffer Baker Steel Gold |
16 |
130.6 |
102 |
N/A |
| MFM Junior Gold |
25.2 |
N/A |
N/A |
N/A |
| SF t1ps Smaller Companies Gold |
63.4 |
N/A |
N/A |
N/A |
| WAY Charteris Gold Portfolio Elite |
14.9 |
N/A |
N/A |
N/A |
Source: FE Analytics
CF Ruffer Baker Steel Gold and Smith & Williamson Global Gold & Resources are much smaller in size than BlackRock Gold & General, which means they are more nimble and can invest across the entire market-capitalisation spectrum.
However, Hambro’s vehicle is less flexible, and has to take positions in larger companies. The likes of Newcrest Mining and Goldcorp both appear in the fund’s top-10 holdings.
This increased exposure to larger, more stable mining stocks has made the fund less volatile. Both CF Ruffer Baker Steel Gold and Smith & Williamson Global Gold & Resources are more volatile than Hambro’s fund over one- and three-year periods.
Physical gold has continued to deliver appealing returns, and only last week it broke the $1,900 mark for the first time in its history. However, gold equities have struggled.
Hambro believes the relative underperformance of gold mining stocks has presented investors with a good buying opportunity.
"Gold equities have underperformed gold bullion year-to-date as a result of the intense pressure applied on the equity market by macro economic concerns," he said.
"Valuations are, as a result, in historically low ranges but earnings expansion on the back of elevated gold prices and growth in dividends could well catalyse a re-rating."
A spokesperson from Schroders Private Banking is of a similar opinion.
"The recent underperformance of gold shares can be partially explained by the rise in oil prices, which pushes up costs for the miners," he said. "It may also be explained by the rise in gold ETFs, offering investors a ready alternative to gold shares."
"However, we see the de-rating of gold shares as an opportunity and are positive on the outlook for the listed gold miners."
BlackRock Gold & General has a total expense ratio (TER) of 1.94 per cent and a minimum investment of £500.