Commodities add further diversification benefits to a portfolio. Gold, for example has a correlation of just 0.09 with the FTSE 100. Over long periods of time the CFA Institute has found that portfolios containing a significant exposure to precious metals experience higher average annual returns whilst exhibiting lower levels of volatility.
Our current investment selection includes:
| COMMODITY | RATIONALE |
|---|---|
| Gold | Protects portfolio against inflation, particularly topical given the current debt levels and QE programmes. Gold is regarded as a ‘safe haven’. The high reached in the 1980s equates to $2,200 today in inflation-adjusted terms. |
| Silver | Similar to gold in that it is a store of value – the words for silver and money are in fact the same in 14 different languages. Is trading at a historic low vs. the gold price. Unlike gold, silver is “consumed” in industrial processes which will support the spot price. |
| Platinum | Will benefit for increasing Chinese demand for cars, rising inflows into ETFs and its reputation as a store of value. |
| Palladium | Will benefit for increasing Chinese demand for cars, rising inflows into ETFs and its reputation as a store of value. |
Exposure is obtained by purchasing exchange traded funds that are listed on the London Stock Exchange, which hold the physical allocated metal under trust in a vault at HSBC and have very low management fees.