Steven Richards, associate director at Thesis Asset Management tells us that amid falling asset prices, focusing on gold pays off.
'As the quarter ended on a Brexit that didn’t happen and investors were left wondering whether it ever will, our mandates’ UK bias will have to wait a while longer to see any discount narrowing of our home market relative to other developed markets.
Year to date, we take comfort from the resilience of sterling to the ebb and flow of political developments and also from how our portfolios have performed through the contrast of the last two quarters.
Never to be complacent, though, 2019’s price rallies across all assets has provided us the opportunity, not present in the fast moving markets of 2018’s final quarter, to review our positioning.
Having proved an excellent counter-balance to other falling asset prices during the final three months of 2018, gold has continued to reward during this year while these same assets rebound.
The US Federal Reserve’s move to a more patient stance on further rate hikes, alongside the potential for stored up inflation to release, has created a real interest rate tailwind that should continue to see the gold price shine.
We have therefore furthered our exposure to this precious metal, choosing to invest in a physical gold exchange-traded fund (ETF) to complement the Merian Gold & Silver fund, managed by Ned Naylor-Leyland (pictured), we already hold.
The latter fund does provide exposure to the bullion, however, its manager is more heavily weighted to gold mining shares, which makes for higher leverage to the gold price and occasionally bouts of shorter-term unwanted equity correlation from what is considered an alternative asset.
Having been what we consider neutrally positioned in equities, the funding for this purchase has come from reductions to UK and European equity exposure, alongside a minor deployment of our cash balance, which is high in historic terms.
Recent macro data releases have done little to support the story for further advances in equity markets and, indeed, only played into the slowing global growth story.
Our UK reduction is minor and coincides with a strong period for Thesis’ Equity Stock Screen, which has added another 2% outperformance versus the FTSE All Share’s rise year-to-date. This builds on 2018’s 1% bettering of this yardstick in what was a down market.
Meanwhile, our reduction in Europe sees us focus our exposure on the JP Morgan Europe Dynamic (ex UK) fund, which has been our core holding for this region since August 2010. Since then, it has bettered the MSCI Europe ex UK index in six of the eight calendar years since.
Recouping all of Q4’s decline in the year-to-date against markets that are yet to regain their highs reinforces the idea that alpha can be delivered without over-weighting equities.
In the meantime, we believe that with a robust weighting to alternative assets, including infrastructure, where holdings such as 3i Infrastructure have delivered for us since spin-off in 2007, further progress can be made in 2019 – with or without Brexit.'