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August 19, 2016 at 10:24 AM
Steven Dunn, executive director and head of U.S. for ETF Securities, makes a compelling case for precious metals like gold, silver, platinum and palladium to be a core holding in investors’ portfolios.
“There’s a good case for [precious metals] being a core holding of your portfolio,” Dunn told ThinkAdvisor. “It may not be 20% of your portfolio, but maybe a core 5% of your portfolio.”
ETF Securities, an asset manager focused on exchange-traded funds, exchange-traded commodities and exchange-traded currencies, has approximately $2.5 billion assets under management in the U.S. and $22 billion worldwide. ETF Securities’ current U.S. precious metals offerings include: ETFS Precious Metals Basket Trust (GLTR), which was the first in the U.S. to offer a physically backed precious metals basket ETP that holds gold, silver, platinum and palladium in fixed weights; ETFS Gold Trust (SGOL); ETFS Silver Trust (SIVR); ETFS Platinum Trust (PPLT); and ETFS Palladium Trust (PALL).
Recent research from ETF Securities shows that adding a precious metals allocation to a diversified stock-bond portfolio has historically increased portfolio efficiency – lowering risk while increasing return.
“In 2016 we’ve been spending a lot more time talking to advisors about the role [of precious metals] within a portfolio, the percentage they should play within a portfolio,” Dunn said. “We’re trying to make the case that commodities should never be zero, because they do some really great things in your portfolios. Typically they lower your overall risk portfolio, they bring you diversification through low correlation, and they provide you with a little bit of a performance boost.”
Dunn said the diversification aspect is the most important thing he tries to reinforce to financial advisors.
Diversification, ETF Securities says, has become more challenging to achieve following the 2008 financial crisis.
“Correlations across alternative investments rose dramatically in 2008 compared to the preceding period from 1996 to 2007,” the firm says in a July report. “Following 2008, however, several alternative investments’ correlations and equity exposure to global equities remain elevated compared to their pre-crisis levels, particularly commodities and REITs. Meanwhile, precious metals remain an exception — further highlighting their effectiveness as a true alternative investment.”
Along with their diversification abilities, precious metals also have performed well during event risks and equity volatility.
This can be seen in their relative performance against global equities during several key events of market uncertainty in recent decades, the report says. For example, following the 2008 global financial crisis, the cumulative return for global equities was -43.8% while precious metals had a cumulative return rate of 1.3%. More recently, following Brexit, the cumulative return rate for global equities was -1.2% while precious metals saw a cumulative return of 9.8%.
