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Sovereign funds plan bond and gold purchases

Gold_ETFsSovereign investors, such as central banks, plan to increase allocations to bonds, private equity and real estate over the next 12 months.

Invesco found 43% of those surveyed would increase investments in bonds, the same percentage for private equity and infrastructure, and 38% would increase to real estate.

The data suggests equity holdings for sovereign funds will decline further still. At the end of 2019, average equity allocations were at their lowest level since 2013, both relative to bonds and to overall assets.

Rod Ringrow, head of official institutions at Invesco, said Covid-19 had accelerated an existing trend towards infrastructure projects by creating potential distressed opportunities. Many investors have considered infrastructure investments expensive due to the abundance of capital chasing relatively few deals, said Ringrow. But some see the current situation as an opportunity to take advantage of selling in sub-sectors, such as airports.

“Infrastructure projects, particularly electricity generation and transmission that help countries transition away from fossil fuels were seen as ways of fulfilling ESG objectives, added Ringrow.

Invesco’s eighth annual Global Sovereign Asset Management Study – which is based on responses from 83 sovereign funds and 56 central banks that together manage $19 trillion – also found a “small but significant group of sovereigns” had increased allocations to gold.

On average, 4.8% of total central bank reserve portfolios are now allocated to gold – up from 4.2% in 2019 – with almost half (48%) of those that increased their allocations having done so with a view to it replacing negative yielding debt rather than more commonly-understood reasons such as diversification and gold’s role as an inflation hedge.

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