Gold prices have taken a skydive in the past few days. As analysts watch eyes-wide and open-mouthed while investors rush to dump gold holdings, fears that a decade-long bull run is over are solidifying.
Gold is a core holding in a diversified portfolio so it's likely you're invested in at least one fund with heavy exposure. But should you be in a rush to sell? Not for the moment, if you're a long-term investor, is the general consensus among analysts.
Let's look at how the funds with heavy gold exposure in our Top 100 Funds are reacting to the news:
City Natural Resources High Yield Trust (CYN)
This investment trust's benchmark is two-thirds HSBC Global Mining Index and one-third Credit Suisse High Yield Index and it currently has a 17.5 per cent weighting to physical gold. It has reduced its exposure from around 28 per cent a month ago, a reactive move fuelled by steadily shrinking prices over the period.
Co-manager Will Smith describes the recent price plummet as "unprecedentedly violent", but says he isn't definitely throwing gold out of the portfolio just yet. "People need to remember these are short-term fluctuations," he said. "It also opens up exciting opportunities for quality companies in the sector. It'd take another major sell-off for gold allocation to be significantly cut further - and gold won't move in isolation. Other commodities are likely to fall with it."
Ruffer Investment Company (RICA)
This investment trust looks to generate annual absolute returns after all expenses of more than twice the Bank of England's base rate. In 2008, it made an impressive 24.2 per cent as the FTSE All-Share fell nearly 33 per cent, which contributed to its inclusion in our Top 100 Funds. Its benchmark is the FTSE World Index and it has an 8 per cent exposure to physical gold. Analysts say its defensive investment strategy means investors anxious about news of the dip in gold prices can "keep calmer". Gold is also its second most important defensive asset, behind index-linked bonds which make up 28 per cent of the portfolio.
Co-manager Steve Russell says he doesn't intend to cut his gold holding over the news and would only reduce allocation if quantitative easing ended and the world returned to a high-growth environment. "The dip will have priced short-term and leveraged investors out of the market, but gold has always been an unreliable friend. Our core view is that the debt crisis will end in currency compromise - and gold offers good protection from this."
Executive director Robin Angus says the fund has ramped up gold exposure by 1 per cent in the past few days, in light of the news, bringing it to 13 per cent. "We want to take advantage of this situation," he said - and he added that there is potential for an even higher allocation if things continue.
The fund's gold exposure has remained stable in recent months, although the fund almost upped the allocation at the end of last year, deciding not to at the last minute for fear of short-term losses.
Its number one defensive asset is US Treasury income securities, followed by gold.
It's another investment trust that has been very successful at limiting downside risk, and this ability has earned it a place in our Top 100 Funds. Its cautious approach means performance can lag when markets are rising, but long-term performance is very strong.
What the analysts say about these funds
The general consensus is that all of these funds are core holdings and you shouldn't dump them from your portfolio based on the recent dip in gold prices.
Jason Hollands, head of business development at Bestinvest, says: "Each of these funds has meaningful exposure either to physical gold bullion or miners, so despite some recovery today, the slide since the start of the year will have impacted the performance of what are all, in their own right, very credible investment funds."
And Finlay Bodman on the investment trust desk at Investec agrees, but says if you did decide to ditch them, you could increase the risk exposure of your portfolio by replacing it into equities, or if you wanted to de-risk it, you could move your money into cash instead.
Top 100 funds with heavy physical gold or gold mining exposure
| Fund | Equity industry gold % (net) | 1-year performance | 3-year performance | 5-year performance |
|---|---|---|---|---|
| Personal Assets | 4.84 | 5.59 | 27.29 | 49.46 |
| Ruffer Investment company | 4.25 | 10.71 | 22.08 | 75.23 |
| Investec Global Gold A Acc Net GBP | 76.06 | -28.28 | -27.18 | -15.41 |
| Smith & Williamson Glbl Gold & Resources | 53.65 | -30.95 | -28.44 | -0.48 |
| First State Global Resources A Acc | 15.29 | -18.73 | -24.85 | -19.41 |
| City Natural Resources Ord | 21.89 | -29.20 | -12.52 | 7.46 |
| Source: Morningstar as on 16 April 2013 | ||||
