Fund managers are incorporating gold into their portfolios as a hedge against potential rises in inflation and geopolitical risks as the US dollar weakens, according to a recent panel discussion.
UBS Global Wealth Management Australia chief of investments Andrew McAuley said UBS views gold as a good “geopolitical hedge” in the current economic environment and currently holds around 2 per cent in its portfolios.
Speaking at the Australian Wealth Management Summit last week, McAuley said gold tends to perform well where the US dollar is weakening, which is what the wealth manger is forecasting to occur.
“Gold has proven itself over and over again. Back in 2022, there was a large sell-off when yields rose as much as they did but that’s what you’d expect. We’re currently seeing central banks diversify away from US Treasuries and they’re buying gold, particularly with the Chinese,” McAuley said.
He also noted that gold was a relatively finite commodity and was becoming harder to find, similar to copper.
“It enables the store of value for when inflation rises,” he said.
“Gold obviously doesn’t pay yields but it has a strong role to play as a geopolitical hedge against a weaker US dollar.
Infrastructure, real estate assets also play key role in building portfolio resilience
In terms of other real assets, McAuley said UBS also continues to view infrastructure as an important tool for maintaining resilience in portfolios.
“We’ve always had infrastructure in our portfolios, which has shown to be very resilient, particularly during 2022 when everything was being sold off,” he said.
McAuley said certain parts of the real estate sector are also attractive but stressed the need to be selective.
“We particularly like multifamily residential and logistics and space,” he said.
Speaking on the same panel, State Street Investment Management senior strategist Clive Maguchu also agreed that real assets play an important role in creating resilience and diversification in portfolios.
“In the past couple of years, we’ve had that inflation shock. Inflation is now being brought down under control but the enduring lesson from the past couple of years is that even seemingly diversified portfolios can experience large amounts of volatility. We saw what happened with stocks and bonds combinations,” Maguchu said.
“So real assets do offer that diversification that’s really important for clients to have. The underlying assets themselves have characteristics that are quite different to equities and bonds.”
Capital Prudential managing director Jarrad Haynes said real assets typically offer a low correlation with the equities market but noted they are a longer-term investment.
“Our view on real assets is that you need to look through the cycle a little bit. There are transactional costs and premiums that you need to pay with real assets. From our view, it’s a longer-term view but the fundamentals within assets are quite strong at this particular point in time,” Haynes said.
