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Gold no longer glitters for 7IM

19 August 2018

Seven Investment Management, which has dropped gold from all but its most cautious multi-asset portfolios. 

The investment group said even among its most cautious portfolios, exposure to gold has been halved to just 2%, in favour of a move towards general commodities. It follows a previous reduction in gold exposure of 1% in November 2017 and a further 2% in February 2018.

It is the first time in five years that 7IM has held a material position in broader, energy-linked, agricultural and industrial commodities. The past five years have seen the broad commodities market fall by around 30%, largely due to the poor performance of the energy sector between 2014 and 2016.

Matthew Yeates, investment manager, 7IM, said: “There are good arguments for returning to broad commodities, which give portfolios exposure to inflation-linked assets. In historical periods such as 1994, characterised by rising inflation and weakness in both bond and equity markets, commodities were among one of the only asset classes that performed well.”

While 7IM does not expect steep inflation in the near future, it said it needed to be prepared for inflation shocks and taper tantrum-type events that could hurt both equities and bonds.

Yeates added: “We like the diversification that commodities offer, so with pricing looking fair and the economic recovery seeming to still have legs, we believe that over the long term, general commodities can earn their keep in portfolios again.”

Peter Sleep, senior investment management, 7IM, said: “Gold can act in an unpredictable way often depending upon factors like the strength of sterling, the US Dollar, Chinese interest rates or the Indian wedding seasons. Nevertheless, in very conservative portfolios, it can still sit comfortably alongside an investor’s bond funds as a hedge against high inflation should it come back again.”

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