Feb 05, 2019
This week's highlights Mining and resources stocks rallied strongly last week. VanEck Vectors Gold Miners ETF (GDX) was the top performing fund for the second week running, returning 5.1%, followed closely by BetaShares Global Gold Miners ETF (MNRS). Domestic resource sector ETFs (QRE, OZR ad MVR) were also amongst the top performers. Domestic financial sector ETFs fell in advance of the release of the Hayne Royal Commission findings this week; MVB, OZF and QFN all dropped more than 3.5%. Commodity ETFs generally had a strong week with oil (OOO), hedged gold (QAU) and silver (ETPMAG) all amongst the top performers. All five ETF Securities’ precious metals funds posted positive returns for the week. Total flows into domestically domiciled ETFs were $193m for the week, while outflows totalled only $10m. The weeks largest inflows were into domestic equities (IOZ), A$ cash (BILL) and iShares Global Consumer Staples ETF (IXI). Major domestic benchmark ETFs dominated trading volume last week. IXI, IAF, BILL and IXJ all seeing above average trading levels. ETFS S&P Biotech ETF (CURE) has returned 13.0% in 2019 to-date, making it the top performing unleveraged equity ETF.
Jan 30, 2019
This week's highlights Global stocks were mixed last week with gold miners, real estate and non-Japan Asia outperforming. VanEck Vectors Gold Miners ETF (GDX) was the top performing fund for the week, returning 3.7%, followed by iShares MSCI South Korea Capped ETF (IKO) at 3.5%. Global energy and healthcare funds were amongst the poorest performers with FUEL, IXJ, CURE and DRUG all posting negative weeks. Australian financial sector ETFs also declined. Inflows were also mixed with money moving into both long and short domestic equity funds (BBOZ, STW and EX20), global infrastructure (IFRA) and multifactor ETFs (WDMF and EMKT). Outflows were primarily from domestic financial sectors (QFN), geared equity funds (GEAR and GGUS) and Europe (IEU). Both BetaShares Australian High Interest Cash ETF (AAA) and BetaShares Australian Bank Snr Floating Rate Bond ETF (QPON) saw significant trading volume last week, while volumes in major equity benchmarks were well below longer-term averages.
Jan 22, 2019
This week's highlights Global equities improved again last week led by the Financials sector. Geared Equity ETF (GGUS) and Finance Sector ETF (BNKS) led the way with gains on 6.9% and 4%. Oils strong start to the year continued up again last week. OOO returning 4.1% for the week and 18.2% year to date. Looking longer term, ETPMPD remains the best performer over 12 months with a return of 37.4%. With property, technology and infrastructure ETFs all posting double digit growth. In terms of net flows, domestic equity and geared funds had the most redemptions, whilst there were significant flows into sustainability ETFs.
Jan 21, 2019
Gold 2019 Outlook Gold had a positive return of 9.4% in 2018 2019 is looking to experience further geopolitical instability, particularly: US/China trade tension Continued uncertainty around Brexit Gold net non-commercial long contracts have been on the rise since October 2018 Does it take a market correction to see the value in gold? 2018 wrapped up in a storm of volatility. Markets up for the first three quarters and down thereafter through to late December. Consequently, leaving investors wary of what may be on the horizon. Though we have entered a fresh year, many of these volatility drivers still exist as they remain unresolved. Looking at the geopolitical landscape, 2019 is likely to present events that will continue to affect market sentiment. Trade tensions between the US and China remain, Brexit is fast approaching the original deadline and elections are upcoming in India, the EU and Australia, with all expected to play a role in shaping the year ahead. With this continued uncertainty, defensive strategies and diversification shall continue to be on the mind of many. How did Gold weather the storm? The tail of 2018 saw gold perform as a good hedge against equities. Whilst the S&P/ASX 200 dropped 7.8% from October to December end, gold netted a 9.6% gain in this same period (Figure 1), which indicates inclusion of gold into a portfolio for the period could have reduced volatility and downside risk Examining several major indices across 2018, ETFS Physical GOLD had a positive return of 9.4% whilst all major equities were in the red (Figure 2). Gold outlook for 2019 The outlook for 2019 performance will likely be impacted by a continuation of the global themes that dictated the close of 2018. In the World Gold Council’s “Outlook 2019: Economic trends and their impact on gold”, it has outlined three important drivers of gold demand: financial market instability, the impact of rates and the dollar and structural economic reforms The political instability that has enveloped the leading economies of the US and the UK is set to continue with markets responding to ongoing turmoil. The protectionist attitude of the US has encouraged inflation, with gold used by many to hedge against this. These movements have heralded a renewed interest in gold which can be seen on multiple fronts. Net positive flows into ETFs have occurred for the previous three months, though Asian markets (including Australia) have lagged Europe and America on this front. Futures have also pointed to change in sentiment towards gold. Net non-commercial long contracts have been on the rise since October 2018, reversing the downward trend seen throughout 2017 and most of 2018 (Figure 3). The bearish view of gold suggests that performance could be constrained by a strong US dollar and rising interest rates. Addressing these points; the significant price movements of the dollar in recent weeks makes the price outlook of the dollar particularly tricky to predict. Examining the relationship between gold and interest rates, these have seen a degree of positive correlation in the past although not to a particularly significant degree. Finally, economic reform is expected to continue across China and India in 2019. As the greatest consumers of physical gold (through both investment and jewellery), economic growth in these regions will likely impact the precious metal. Further economic development and particularly the increase of wealth in India and it’s growing middle class is likely to continue to drive demand. On balance key indicators that have dictated the previous performance of gold suggest that we are likely to see a continuation in the upward trend of both investment flows and price of gold. Investors wanting to access gold may be interested in the benefits of exposure through investing in gold miners’ equities. Whilst this strategy gives the potential to receive dividends it does not offer the same exposure of a physical gold ETF such as GOLD as the price changes in gold miners can be quite different from the movement of gold price. The mining industry has recently garnered attention due to large M&A movements. Significantly Goldcorp will be acquired by Newmont Mining in a US$10bn deal. Subsequent to this announcement Newmont’s share price dropped 11% overnight. For investors who are utilising gold as an event risk hedge, other factors such as M&A activity can have unexpected effects on gold miner’s share prices. Therefore, a direct exposure to physical gold will eliminate exposure to stock specific risks.
Jan 15, 2019
This week's highlights The S&P 500 returned its third straight positive weekly gain continuing a promising start to the New Year. Both ETFS S&P Biotech ETF (CURE) and Betashares Crude Oil ETF (OOO) were the top performers for the week and also the Year to Date. Geared Australian and U.S equity funds also had a strong week along with thematic ETFs ROBO and RBTZ. Looking longer term ETFS Physical Palladium (ETPMPD) ETF was the best performing ETF over the previous 12 months returning 33.9%. Domestic cash and equity products saw majority of the flows and turnover for the week and continued the trend so far for 2019. The biggest outflows for the week were for international equity exposures IEU and IVV.
Jan 08, 2019
GOLD 100% physically backed Highly recommended by Lonsec Recommended by Zenith Key features of Gold: Can materially reduce risk in portfolios The best-known hedge against the business cycle Outperformed cash since the 1800s Hedge against geopolitical events Global trends around Gold investment: Global Gold ETF investment flows have moved to positive for the first time since May 2018 Central banks have increased buying of gold to the highest level since the end of 2015 Gold is the world’s oldest financial asset and has been used for centuries in transactions and as a store of value. However, many Australian investors are hesitant to allocate assets to gold, with the lack of yield being a common concern. We believe investors should consider the role of gold in a portfolio, particularly with the recent volatility being experienced across the globe. Key features of gold 1. Gold can reduce the risk of a portfolio The most efficient portfolio is one that takes the least risk while making the highest return. Risk can be reduced by diversifying across and within asset classes based on low or negative correlations. Gold has low or negative correlations with traditional asset classes making it ideal as a risk reduction tool. 2. Gold has outperformed cash since the 1800s In a review of every major US asset class, Jeremy Siegel, a professor of finance at the University of Pennsylvania, found that gold provided investors with a real return of 0.5% from 1802 to 2016. He found that while gold was beaten by bonds and equities, gold outperformed cash, with cash delivering a negative real return of -1.4%. 3. Gold acts as a hedge against geopolitical events Gold has had an historical tendency to rise during times of crisis and turbulence. This means gold can provide something like an ‘event hedge’ – or the chance to reduce the impact of ‘black swan’ type events which, while relatively uncommon, can have a strongly negative impact on a portfolio. Taking the well-known example of the GFC (below) it can be seen that the difference between gold and the equity markets one year on from the credit crisis was 35% in favour of gold. Global trends of Gold investment Recent global movements have shown many investors are reallocating to gold. On this front Australia is lagging behind global trends with other regions showing a greater propensity for an allocation to gold. We have seen this increased appetite for gold emerging on multiple fronts: Gold ETF investment flows have moved to positive for three consecutive months (October-December) with 3% growth in ETF holdings in 2018 The total value of global gold backed ETF holdings in now over $100bn for the first time since 2012 Central banks have increased their buying of gold to the highest level since the end of 2015 What does gold look like in a portfolio? To demonstrate the effect of gold in a portfolio we have simulated the past performance of a series of Vanguard “LifeStrategy” funds with and without a 10% allocation to gold. Simulations were run over a 15-year period (since inception of ETFS GOLD). These funds provide an all-in-one portfolio made of globally diversified blends of equity and bonds (proportion equities & bonds indicated in charts below). In every case, the portfolio including a 10% allocation to GOLD outperforms and has lower beta and standard deviation indicating a lower risk. Based on this it’s clear gold does exactly what it’s meant to do from an investment perspective and we believe that many Australian investors are ignoring these risk reduction properties. Conclusion Gold is the oldest known store of value and has been continuously used for this function for centuries. We have demonstrated above the key features of gold that make it an appealing option for some investors. Gold’s low and negative correlations with other asset classes have seen it perform as an effective hedge in previous bear cycles and during global geopolitical events that have negatively affected other asset classes. Simulated data also demonstrates how this diversification can function in a hypothetical portfolio to reduce risk and increase returns.