Fund managers reduced gold allocations

The high price of gold has led asset allocation fund managers, like Barings and LGT, to re-consider their positions and reduced their holdings in the asset usually held as a hedge against inflation and uncertain markets.

A report from Standard &Poor’s Fund Services showed that, although gold was, by and large, still deemed to be a safe haven, some managers have been changing their tune.

“A number of asset allocation fund managers have long-standing positions in gold,” said S&P Fund Services lead analyst, Roberto Demartini. Managers such as Laurence Boyle at WDB Assetmaster and the management team of Percival Stanton and Andrew Cole at Barings have held gold since 2007.

The analyst said that Boyle at WDB Assetmaster has retained his holding as he believes that gold could do well both in an inflationary scenario and in the case of a double dip recession.

But the high prices have led to some managers reducing their holdings. “The Barings team feels that gold has not fulfilled that objective, as its performance has been highly correlated with that of other risk assets,” Demartini said. “This has led them to reduce exposure slightly.”

Other fund managers who reduced their holdings include the team at LGT, who took some profits in gold miners despite remaining positive on the fundamentals.

S&P Funds Services found that the managers at Union Investment were less confident on the asset’s future. They considering investing in gold but avoided doing so on the claim that the recent rise of the gold price is not backed by solid fundamentals.

Legal & General also remained out of gold as the management team considers it could potentially be the next bubble. “The Legal & General team believes that its appreciation has been supported more by an environment of low interest rates and ample liquidity.  If these factors disappeared and investor demand subsided, then gold could go through some weakness,” said Demartini.

The analyst found that the outlook for gold for the next six months differed among managers. “On the one hand are the sceptics, such as the team at Newton, who remain cautious,” Demartini said. On the other hand, the more upbeat view was characterised by the team at KAS (Deutsche Postbank) who are positive on the markets and expect a rebound after the summer.“

©2010 funds europe



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