With gold performance often hit or miss, fund managers who focus on this commodity face challenges marketing through the ups and downs.
The World Gold Council, which sponsors a family of exchange-traded funds called the SPDR Gold Shares, recently issued a whitepaper concluding that gold allocation should measure between 2% and 10% for a wide range of investor portfolios "depending on individual risk appetites." William Rhind, managing director and head of institutional investment at the World Gold Council, says there was strong gold demand in China and India during 2013 with the same happening in the U.S. and Western Europe early in 2014. Rhind, who leads gold investment activities focused on institutional investors, says two points he tries to emphasize to investment managers on the advantages of including gold in portfolios are that it helps increase purchasing power and as well as boosting diversification.
"We try and educate people that gold is a long-term investment," says Rhind, who develops educational campaigns for the World Gold Council on the role of gold in portfolio construction for pension funds, endowments and asset managers. "It is not something you own based on momentum or short-term investing."
SPDR Gold Shares is marketed and managed in the U.S. by Boston-based State Street Global Advisors. Marketing of the fund and the gold sector in general includes speaking at industry conferences, webinars and social media, according to Rhind. The target audience for marketing and distribution efforts includes institutional investors as well as financial advisors who work with retail investors.
"We find now is an important time to educate about gold," says Rhind. "We're trying to do more outreach."
Another money manager stepping up education efforts for advisors about gold investing is U.S. Global Investors, which has a gold and precious metals funds based in America and internationally. The asset manager's CEO and chief investment officer, Frank Holmes, says a major point made to advisors is to construct 10% of a portfolio in gold and then re-allocate. Communication about this strategy and other trends with gold are relayed to the company's more than 40,000 readers in 170 countries through weekly online commentaries as well as a blog that Holmes writes.
"We try and be as mathematical as we can to articulate why diversification is important and why 10% is important," says Holmes, who recently met with financial advisors in Hong Kong while giving a keynote address at a conference on the gold mining industry. "The important discipline is the rebalancing."
State of Gold
Gold fund managers received positive news when UBS raised the commodity's three-month outlook on Feb. 21 from $1,100 an ounce to $1,350. However, Robert Haworth, senior investment strategist at U.S. Bank Wealth Management, forecasts gold to struggle for the rest of the year due to improving economic growth led by Europe and the U.S. along with planned Federal Reserve tapering.
"The demand will likely be sufficient to increase volatility, but we believe it will not be enough to change the broader negative price trend," says Haworth.
Highlighting gold's erratic market movement is the Market Vectors Gold Miners ETF, which declined 66% from 2011 to 2013 but is off to a strong start in the early going of 2014, according to Morningstar analyst Samuel Lee. Uncertain patterns of gold products such as Market Vectors underscore how fund managers should focus on emphasizing the importance of reaching a relevant benchmark rather than an absolute return, Lee explains.
"Gold funds are not meant to outperform all the time," Lee explained. "They are meant to be diversified."
The Gold Story
Lee urges gold fund managers to be smart with the types of investors they go after. He said since gold investing will often outperform the broader market during economic downturns such as 2008, investors may be looking for short-term gains and flee once performance wanes.
"A number of these funds attract a lot of the wrong types of investors," says Lee.
Rhind argues that there is no right or wrong type of investor to have gold in their investment offerings.
"We believe everyone should own gold," says Rhind. "It's the oldest asset class arguably on the planet.'
Gold fund managers received positive news when UBS raised the commodity's three-month outlook on Feb. 21 from $1,100 an ounce to $1,350. However, Robert Haworth, senior investment strategist at U.S. Bank Wealth Management, forecasts gold to struggle for the rest of the year due to improving economic growth led by Europe and the U.S. along with planned Federal Reserve tapering.
"The demand will likely be sufficient to increase volatility, but we believe it will not be enough to change the broader negative price trend," says Haworth.
Highlighting gold's erratic market movement is the Market Vectors Gold Miners ETF, which declined 66% from 2011 to 2013 but is off to a strong start in the early going of 2014, according to Morningstar analyst Samuel Lee. Uncertain patterns of gold products such as Market Vectors underscore how fund managers should focus on emphasizing the importance of reaching a relevant benchmark rather than an absolute return, Lee explains.
"Gold funds are not meant to outperform all the time," Lee explained. "They are meant to be diversified."
The Fed Factor
Fund managers who deal with goal-focused platforms can often be impacted by policies set by the Federal Reserve. Todd Rosenbluth, director of ETF and mutual fund research, says there have been "slight' inflows back into gold and commodity ETFs in the 2014 first quarter due to interest rates stabilizing. However, Rosenbluth does not see current U.S. conditions paving the way for a bull gold rush in 2014.
"Gold's appeal still remains as a way to get non-correlated exposure as a hedge against inflation," says Rosenbluth. "Unfortunately, inflation in the U.S. is extremely low."
