Investors adding liquid alternatives to their portfolios should consider gold


Categories: Investment

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New York June 19, 2014The most liquid of all ‘liquid alts’, one of a series of papers published today by the World Gold Council, highlights how gold exhibits the characteristics of liquid alternatives (or ‘liquid alts’)  without many of the inherent disadvantages associated with this growing sector.

There has been a surge in the creation and demand for liquid alternatives following the financial crisis as investors look to alternative assets to provide efficient risk-adjusted returns and diversify risk exposures from traditional securities such as stocks, bonds and cash.

The paper examines how gold exhibits all of the characteristics which  differentiate liquid alternatives from other alternative assets, such as hedge funds or private equity, including liquidity and daily pricing, but also highlights the additional advantages gold can offer which are not available with many liquid alternatives. These include:

  • Deeper liquidity – Gold is one of the most liquid assets in global markets and its average daily volume rivals those of major currency pairs.
  • Cost advantage – The cost of vaulting allocated physical gold or owning gold through an exchange-traded fund (ETF) is typically lower than 50 basis points per year. When compared to the average cost of mutual fund liquid alternatives (1.9%), gold can deliver similar desired investment characteristics at a fraction of the cost, while maintaining easy market access.
  • Long track record – The added benefits of adding gold to an investment portfolio have been studied and reported extensively and gold has been freely traded since the1970s.
  • No cash drag – Liquid alternatives often keep cash on hand to meet potential investor redemption requests, resulting in a drag on performance relative to their benchmark. There is no liquidity discount or cash drag when investing in physical gold or fully physically-backed ETFs.

Juan Carlos Artigas, Director of Investment Research at the World Gold Council, said, “The long term trends for liquid alternatives are extremely favourable as investors are expected to continue allocating portions of their portfolios to non-traditional investment options. Based on our research, gold may be the ideal liquid alternative as it shares the same advantages of this unique subsector, without some of the inherent disadvantages. Further, holding gold in a well-diversified portfolio – even one that includes alternative assets – can improve performance by reducing risk, and resulting in better risk-adjusted returns.”

He continued “Investors looking at liquid alternatives may consider investments in gold either through physical bullion and coins, ETFs, derivative contracts such as futures and options, or a combination thereof.”

In addition, the latest Gold Investor includes two further papers: How gold improves alternative-asset performance details how diversified portfolios containing assets such as private equity, hedge funds, real estate and commodities can be enhanced by adding a discrete allocation to gold; and Gold: metal by design, currency by nature explores how gold behaves more like a currency than a commodity.

The full report can be downloaded at: /investment/gold-investment-research


You can follow the World Gold Council on Twitter at @GOLDCOUNCIL

For further information please contact:

Melissa McVeigh
World Gold Council
T   +44 (0) 207 826 4701
M  +44 (0) 7714 900 223
E  [email protected]

Christopher Mittendorf
T   +1 212-704-8134
M  + 1 (917) 344-0673
E [email protected]