The table that shows
you should always hold gold by Richard Dyson
| June 19, 2015
One major investment fund
has held 10pc gold for a number of years. And there's a
sound statisticical argument for doing so, says Richard
Among the torrents of verbiage
produced daily by the investment industry there are a few
regular publications I pore over with enjoyment and close
One is the annual report of the £600m Personal
Assets investment trust, the latest issue of which came
out on Tuesday.
The trust is hugely conservative in that
not losing money is of far, far greater importance than
missing the opportunity to make some on the quick.
Its managers are profoundly mistrustful
of much of what they see in markets and real life.
Risk is screaming from the rooftops in the
form of overvalued Chinese shares (“we have not seen such
flights of fancy since 1999”, the report said), and is lurking,
“disguised” as “something safe”, in the form of German government
Diversification, as a strategy, is all
but dead, in that everything is both dangerous and correlated.
As a result of this bleak world view, Personal
Assets offers a glimpse as to how a portfolio might be constructed
to best weather the ultimate in uncertainty.
If inflation resurfaces with a vengeance,
10pc of the portfolio is in gold and 20pc in UK and US index-linked
If the menace is deflation, there’s a 30pc
cash pile. If shares crash there is comfort in a current
exposure to global equities of only 40pc – plus the fact
that the stocks held are super-quality defensives such as
Nestlé and Coca-Cola.
If the stock market tanks on a truly stunning
scale, there’s the £170m cash hoard with which to go buying.
Not everyone has the same conservative
approach as Personal Assets. To some the world is not so
fraught with risk. But whatever happens, I doubt shareholders
will ever accuse the board of needless caution.
The trust has held roughly 10pc of its money
in gold since 2010. Another interesting document that came
my way this week was the chart, below, which shows how such
a holding within a portfolio otherwise made up of British
shares and bonds in a 60:40 split would have affected returns
over the past four decades.
The research was undertaken by gold investor
service BullionVault – so not disinterested – and puts a
price on owning gold in terms of its hedging benefits on
one hand and loss of long-term returns on the other.
A 10pc holding, for example, would have
roughly halved portfolio losses in the worst year of the
past 40. The price paid would have been the reduction, by
almost two percentage points, in the average annual growth
over a five-year period.