Institutional investors look to gold assets

12 December 2019
| By Oksana Patron |
image
image
expand image

Institutional investors are right to evaluate adding gold-related assets to a diversified portfolio at times of a slowing growth environment, according to new PGIM research.

PGIM’s study said that gold had a clear role to play in a stagnation economic scenario and, in addition, gold’s hedging effectiveness with other asset classes with inflation and growth varied with an investor’s horizon.

“Gold’s correlations are sensitive to the time period and the investor’s horizon. For example, gold has a negative correlation to equity returns, even at the 90th percentile, over 5-year investment horizons,” Harsh Parikh, principal and a senior analyst in PGIM’s institutional advisory and solutions group, said.

“Gold was diversifying to Treasuries due to its negative correlation, which became more negative as the investor’s investment horizon increased. Additionally, gold-related assets have a positive correlation to CPI, increasing over the time horizon, and a negative correlation to economic activity, which further decreased over the time horizon.”

Following this, the allocation to gold-related assets in hedging portfolios would depend on both the investor’s objective (protection against inflation or slow growth) and investment horizon.

“While we illustrate gold’s role in add-on hedging portfolios, there may be more efficient alternatives to achieve a desired portfolio-level macroeconomic sensitivity,” Parikh said.

At the same time, speaking of difficulties of estimating correlations for long horizon, he said that it would be important for investors to measure estimation uncertainty and see how this uncertainty can be incorporated into the portfolio construction process.

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

GG

So shareholders lose a dividend plus have seen the erosion of value. Qantas decides to clawback remuneration from Alan ...

2 months 1 week ago
Denise Baker

This is why I left my last position. There was no interest in giving the client quality time, it was all about bumping ...

2 months 1 week ago
gonski

So the Hayne Royal Commission has left us with this. What a sad day for the financial planning industry. Clearly most ...

2 months 1 week ago

A Sydney-based financial adviser has been banned from providing financial services in the interest of consumer protection after failing to act on conduct concerns. ...

3 weeks 3 days ago

ASIC has cancelled the AFSL of a $250 million Sydney fund manager, one of two AFSL cancellations announced by the corporate regulator....

3 weeks 1 day ago

Having divested its advice business in August, AMP is undergoing restructuring in at least four other departments amid a cost simplification program....

2 weeks 5 days ago