Gold a winner but not for weak of heart

By Lucie Beaman

SelectAsset Management’s recently launched Select Gold Fund has received a tick of approval from Zenith Investment Partners, with the research house touting the asset class as an ideal portfolio diversifier, though not for the “weak of heart”.

Zenith director David Smythe says the fund received an ‘approved’ rating due to a solid investment process, experienced staff and a non-restrictive level of funds under management (US$350 million).

The fund’s underlying manager is London-based Baker Steel — a boutique manager that specialises in the gold and natural resource sectors. Zenith says the UK manager has a sound track record, in-house expertise, and commitment to control funds under management.

Offering Australian investors access to a portfolio made up of listed equities and physical bullion in both gold and precious metals, Smythe says the Select fund is an attractive alternative investment.

However, the research house warns of the highly volatile nature of gold and gold equities, recommending the asset class only be used in a diversified portfolio with an allocation of around 5 per cent.

“Through its exposure to gold, the fund is regarded as an effective portfolio diversifier given its expected low correlation with other mainstream asset classes. An often sought-after safe haven during times of uncertainty, the inclusion of an exposure to gold in a portfolio acts as a defensive buffer and hedge against inflation,” the research report says.

Zenith says despite the recent retraction in price, the inclusion of gold in a diversified portfolio has reaped rewards for investors since the global equity market slowdown. The research house says “historical evidence supports the view that during times of crises, as equity prices fall, the price of gold rises” — a fact that was illustrated following the events of September 11, 2001.

The research house adds that unlike any other financial asset, gold has no significant statistical correlation with changes in macro economic variables, which supports the notion that it may be an effective portfolio diversifier.