Optimal allocation analysis establishes gold’s diversification benefits for Japanese investors


Categories: Investment

Download (pdf, 29.72 KB)

Latest research by the World Gold Council shows that the inclusion of a distinct allocation to gold within a yen-based portfolio can have a positive impact on long-term performance, at various levels of risk.

The report, Optimal Allocations to Gold for Japanese Investors, which builds on a body of research focussing on the role of gold in investment portfolios, of both traditional assets, such as Japanese and developed markets bonds and equities and alternative assets such as commodities, hedge funds and emerging markets equities.

The research, which comes at a time of growing economic instability both globally and for the Japanese economy, found that gold could be considered a core holding within an investment portfolio, acting as a diversifier. To improve risk-adjusted returns an optimal allocation to gold ranges between 2.1% and 9.4%, depending on the asset mix and risk tolerance.

For more conservative investors accepting a 5% volatility level, optimal allocations to gold ranged from 3.3% to 4.9%, depending on the asset classes included. For investors willing to accept a 10% volatility level, optimal allocations to gold ranged from 6.2% to 8.7%, relative to their portfolio mix.

Takahiro Morita, Director, Japan, for the World Gold Council, said:
“In an environment of heightened volatility and persistent uncertainty, risk management and asset allocation are even more central to portfolio performance. Assets which can provide stability to a portfolio are more important than ever.

“Japanese institutional investors have shown an increasing interest in understanding the role of gold in portfolio management and this study establishes gold’s role as a consistent portfolio diversifier. It comes at an important time for Japanese institutional investors and the World Gold Council is committed to continuing to provide rigorous research which aids institutional investors in their understanding of gold’s attributes as a highly effective core asset.”

This is the third paper in a series published by the World Gold Council specifically for Japanese institutional investors. Previous reports have analysed the risk / return profile of gold in yen terms when compared to other traditional asset classes, reviewed the long-term performance of gold when priced in yen and the role of gold in Japan.

This series extends the World Gold Council’s body of research which spans other currency-specific portfolios (US dollar, euro, pound sterling), as well as gold’s unique portfolio benefits in the presence of commodities or other alternative assets and its behaviour during so-called tail risk events. Optimal allocations for yen based portfolios are found to be consistent with those established across other currencies and in almost every economic scenario, ranging typically between 2% and 10%. All reports can be viewed at: www.gold.org/news-and-events.

As with other research in this series, the paper uses the Michauds’ unique Resampled Efficient Frontier™ optimisation technology to allow analysis of the statistical significance of gold for adding diversification value.

For further information please contact:

Melissa McVeigh
World Gold Council
T +44 207826 4754
E [email protected]

Yasuo Kamai
MSL Japan
T +81-(0)3-5719-8901
E [email protected]