Ruth Saldanha: We took a look at the top performing mutual funds over the past year and found that the top performers hit over 50% in returns. Something interesting we noticed was that all of them were precious metal funds. Now, in general, we believe that retail investors don't have the expertise to invest in gold and don't really need to. But having said that, it makes sense to understand the factors behind gold's rise and understand what the expectations are going ahead. To discuss this Hans Albrecht, Portfolio Manager at Horizons ETFs is with us today.
Hans, thank you so much for being here.
Hans Albrecht: Thanks for having me, Ruth.
Saldanha: What has led to this rise in gold?
Albrecht: I think more recently we've seen some concerns surrounding global growth, economies around the world and a return to what is very much a lower rate environment. And so, gold – some people think of gold as a safe haven destination and I think it's very much benefited from some of the slowing growth, a lot of the negative yields that we're seeing around the world in Japan and Europe, that's created a sense of – created a lack of confidence in a sense. And that's benefited gold to a large extent.
Saldanha: At this late stage of the economic cycle, does it continue to make sense as a hedge?
Albrecht: I think it does. I think it provides some good diversification for portfolios. We've seen over time gold serves as a good diversifier. And in particularly, late in the cycle, we start to see higher levels of volatility in equity markets, and gold tends to benefit from that type of environment.
Saldanha: Gold has run up already pretty significantly. At this point, does it make sense at these high levels for retail investors to enter the market?
Albrecht: I think so. I think the fact is that retail investor holdings in gold are very, very low in gold as well as in mining gold stocks. And if you look at – I mean, Canadians have a little bit more exposure to the area. In the U.S., gold is almost unrepresented across some of the larger indices. So, we feel that there's a lot of room for people to add this as an asset.
Saldanha: You mentioned the mining companies. Now, some of the Canadian miners have risen almost over 100% over the past year or so. What makes most sense at this point? Gold itself or gold mining companies?
Albrecht: I think that comes down to the investor. You're going to get a little bit more beta, a little bit more leverage to the price of gold with miners. Typically, let's say, on average, you're going to benefit 3 to 4 times as much in the appreciation of gold versus – in the appreciation of miners versus the price of gold. So, it depends what your appetite for risk is. But in our view, the miners have really lagged the price of gold over the last four or five years. In late 2015, they all (but) threw them out the window. And so, we're seeing a resurgence in the miners. And I feel that there's quite a bit of reversion to go in terms of their performance versus gold itself.
Saldanha: You mentioned risk appetite. What kind of appetite should an investor have if they consider gold? Is it more for a conservative investor or more for an aggressive investor?
Albrecht: I think if you look at gold over time, it isn't that much more volatile than any other equity sector or asset class. So, I think it's something where you could consider 5% to 10% of your portfolio as it's proven itself as a nice diversifier over time. So, I think that kind of allocation does make sense.
Saldanha: Thank you so much for joining us today with your perspectives, Hans.
Albrecht: Thanks for having me.
Saldanha: We always say that past performance is no guarantee of future results, and investors should always consider their own financial goals and personal circumstances before making an investment.
For Morningstar, I'm Ruth Saldanha.
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