All of the funds listed count a gold exchange traded fund (ETF) as a top-10 holding and therefore are heavily exposed to fluctuations in the precious metal’s value.
The price of gold has plummeted over the last couple of days, falling through the psychological barrier of $1,500; at the time of writing it is at $1,376.
Lower than anticipated GDP growth in China and Mario Draghi’s hints that Cyprus may have to sell its gold reserves as part of its bailout plan have both been cited as contributory factors to the slump.
Viktor Nossek, head of research at Boost ETP, told FE Trustnet yesterday that a more secure world economy was destroying the case for holding the metal.
Sebastian Lyon, who manages the five crown-rated Trojan fund, has long been a proponent of holding gold as a hedge against future inflation caused by quantitative easing across the developed world.
ETFS Gold Bullion Securities and ETFS Physical Gold are the largest and third-largest holdings in his fund respectively, together accounting for 12 per cent of AUM.
In a recent note to investors, Lyon (pictured) urged them not to be swept up by short-term hysteria.
"We have exposure to several currencies other than sterling, but our favourite is the one that is not subject to unlimited supply. Bullion has received another bout of unfavourable press of late. Only the short-term makes the headlines," he said. "Those focusing on the US dollar price of gold have failed to appreciate the recent (and probably temporary) strength in the greenback."
"Yes, gold has been somewhat weak in US dollar terms of late, but it is not always recognised that gold has been doing much better in sterling terms."
Investors in gold have had a very good run over the last decade. According to FE Analytics, it has returned 329.03 per cent over 10 years while – as a point of comparison – the FTSE All Share has returned 151.52 per cent.
Performance of indices over 10yrs
Source: FE Analytics
However, the S&P GSCI Gold Spot index has lost money over one year and six and three months while equity markets have rallied.
Although Lyon was unavailable for further comment, a spokesperson from Troy said the manager remains positive on the prospects for gold over the long-term.
Trojan is a top-quartile performer in the IMA Flexible Investment Sector over three, five and 10 years. However, due to Lyon’s more defensive positions the fund has underperformed against its peers in the short-term.
Trojan has recently soft-closed to new investors, but can be accessed through a number of fund platforms. It has an ongoing charges fee (OCF) of 1.59 per cent.
The FE Alpha Manager duo of David Ballance and Steve Russell are also fans of gold, counting ETFS Gold Bullion as a top-10 holding in both their CF Ruffer Total Return and CF Ruffer Absolute Return portfolios.
They recently told FE Trustnet they have high exposure to the precious metal due to their concerns over a future inflationary environment.
The duo have managed the £2.8bn CF Ruffer Total Return fund since October 2006.
Over that time it has been the best-performing portfolio in the IMA Mixed Investment 20%-60% Shares sector, with returns of 84.77 per cent, beating its peers by more than 60 percentage points in the process.
Performance of fund vs sector since Oct 2006
Source: FE Analytics
CF Ruffer Total Return has an (OCF) of 1.53 per cent and requires a minimum investment of £1,000.
ETFS Physical Gold is the sixth-largest holding in FE Alpha Manager Iain Stewart's £2bn Newton Balanced fund, making up 1.8 per cent of the portfolio.
Of course, it is not just investors in the metal itself that will be hit by its slump.
Gold mining funds are also suffering, however it has been an area of the market that has been unpopular with investors for some time.
FE Alpha Manager Evy Hambro’s £2.2bn BlackRock Gold & General fund has had a hard time of late.
Although it has returned 205.04 per cent over 10 years, it has posted double-digit losses over one, three and five years.
Performance of fund over 10yrs
| Name | 1m returns (%) |
3m returns (%) | 6m returns (%) | 1yr returns (%) | 3yr returns (%) | 5yr returns (%) | 10yr returns (%) |
|---|---|---|---|---|---|---|---|
| BlackRock - Gold & General |
-15.83 | -24.87 | -31.72 | -29.65 | -29.55 | -17.87 | 205.04 |
Source: FE Analytics
Mark Harris, who manages a number of multi-asset portfolios at City Financial, told FE Trustnet that he sold out of the precious metal in January this year and that he would only look to add to his exposure if the price fell below $1,500.
However, he does not believe the current crash represents a buying opportunity, except for investors with a very long-term view.
"I think the asset could go lower again," he said.
"There seems to be a vicious spiral surrounding gold and although there could be a technical bounce in the gold price, I will leave it alone for now. I think it is going to be an asset to leave alone for the bulk of this year."
"If investors have a very long-term horizon, this week’s spell could be a good chance to add exposure. However, in the short-term not really. It is highly volatile and certainly hasn’t been acting like a safe haven recently."
"Something that dramatically volatile is not something you want at the moment," he added.
Despite the clear negative feeling towards the precious metal, Mouhammed Choukeir, chief investment officer at the wealth management firm Kleinwort Benson, says investors should not forget about gold as a diversification tool.
"We do not own gold in portfolios as a pure momentum play," he said.
"We own gold because of its defensive characteristics in times of financial stress and because its sensitivity to inflation is better than most other asset classes."
"We acknowledge that momentum is currently against gold, which is why we are comfortable having only modest exposure."
"Given this, our rationale for retaining some gold exposure in multi-asset portfolios remains intact, but we are unlikely to increase this exposure whilst momentum remains negative."
"While gold is a relatively volatile investment – exhibiting 18 per cent volatility versus 15 per cent for equities – it is an attractive investment in diversified portfolios for two key reasons: it is defensive in times of financial stress, and its sensitivity to inflation is better than most other asset classes."
"Remember that risk events can hit markets with staggering speed."
"The history of financial markets is replete with unforeseen incidents suddenly affecting investor perception of risk and reward."
"It is likely that markets will once again be taken by surprise over something that cannot be foreseen or predicted. In these events, gold may prove to be an important store of capital value, and indeed perhaps even a healthy source of return."
"As such, we like gold and continue to hold it in portfolios," he added.