PLSA AC 2020: Experts highlight gold as 'excellent diversifier' for pension scheme portfolios

Industry experts have highlighted gold as an “excellent diversifier” for pension scheme portfolios, stressing that it is not only in times of crisis that gold has shown strong performance.

Speaking at the PLSA Annual Conference 2020, World Gold Council chief market strategist, John Reade, highlighted the strengths of gold as a diversifier and liquid asset, both in and out of times of volatility.

He explained: “A lot of people think that gold performs well during crisis, or during periods of high inflation, and that’s true, but it’s not the only time gold has performed well.

“Over the last five years, gold put in a very solid performance, only beaten by equities globally and emerging market equities, and similarly over the last ten years, had a performance in line with other assets, and over the last 20 years it’s exceeded other assets.”

In addition to this, Reade stressed that whilst many view gold as synonymous with commodities, recent comparison of the performance of gold and commodities, and specifically crude oil, shows a "marked" divergence.

A session poll revealed that 39 per cent of attendees 'somewhat agreed' with the idea that liquid alternative investments, such as gold, have a role to play in pension portfolios, whilst a further 6 per cent strongly agreed, compared to just 11 per cent who disagreed.

Furthermore, in a subsequent poll, attendees unanimously stated that improving risk adjusted returns was important to their overall investment strategy.

Considering this, Reade emphasised that gold has historically improved the risk-adjusted returns of portfolios through of between 5 and 10 per cent, depending on portfolios.

He continued: "It’s been a source of returns, it’s a great diversifier that works when you really need it, it’s a liquid market and it’s not as volatile as most people think.”

In a further session poll, over a quarter (27 per cent) of attendees stated that they are yet to allocate to gold, but are currently considering it, compared to over two-thirds (67 per cent), who stated that they do not have an allocation and aren’t considering one.

Meanwhile no attendees reported having an allocation to gold in their scheme portfolio before 2020, although 7 per cent stated that they have made gold allocations during 2020.

However, Reade stated that these findings were reassuring, as it leaves potential for further investor demand and buying potential.

He stated that 2020 has been characterised by strong western investment demand, against a backdrop of weakened consumer and tech demand.

“For the second half of this year and into 2021,” he predicted, “I’d expect investment to still remain the most important factor in the gold market, but what we are seeing some signs of recovery in the consumer market, particularly on the jewellery side”.

World Gold Council head of sales, Claire Lincoln, added: “I think we’re about to start the beginning of where asset allocation is really going to change, and there is going to be the need for assets that do offer de-risk.

“That are going diversify a portfolio, and I think the case for gold as we’ve presented today , it really does come with some clear and substantial evidence to back up the case.”

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