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Adviser Fund Index

The Adviser Fund Index has benefited from the recent surge in gold values. Prices hit 28-year highs last week in response to a weakening dollar and stockmarket uncertainty. The AFI has been able to profit from the upswing through several holdings, including Merrill Lynch gold & general and JP Morgan natural resources.

According to data from Financial Express, the Merrill Lynch fund returned 40 per cent between May 1 and November 6. Natural resour-ces, which held 28 per cent of its assets in stocks related to gold and other precious metals at the end of Septem-ber, returned 29 per cent. This compared with a return of just over 1 per cent from the FTSE All-Share index.

Hilary Coghill, investment director at City Asset Management and an AFI panellist, says her firm has “ridden a long position” in gold & general. However, she has been top-slicing her holding in recent weeks. Coghill says: “We hold about £2m in gold & general, and we have a number of clients who say they want more exposure to gold. It is perceived as a hedge against inflation and we have been happy to run with the momentum. But I can not think of a long-term investment reason for gold.”

Coghill’s view of the asset class contrasts with that of David Wynn, investment director at Bentley Jennison Financial Management and a fellow panellist. Wynn uses commodities for diversification but also as a long-term investment. “Commodities sit nicely in our higher-risk portfolio and in our lower risk portfolios, with lower weightings,” says Wynn. “We like the super-cycle story in the Far East over the next 10 to 15 years. Demand is here to stay.”

But Wynn prefers to invest in more general funds than the Merrill Lynch portfolio. Bentley Jennison uses the JPM fund and Wynn says its managers, Ian Henderson and Nicole Vettise, score highly in the firm’s appraisal process. The fund was also popular in the AFI rebalancing earlier this month. Natural resources appears six times across the Aggressive and Balanced indices.

Outside of her AFI selection, Coghill also gets gold exposure through stakes in a Merrill Lynch natural resources hedge fund and the City natural resources high yield investment trust. The £150m trust, run by New City Investment Managers, held 22 per cent of its assets in gold equities at the end of September.

Neither Coghill nor Wynn are currently using exchange-traded funds to access the asset class, despite the removal of stamp duty from such funds earlier this year. ETF Securities reported that its gold funds broke through $300m (£140m) in assets in September.

The companies estimates that $17bn has flowed into gold ETFs over the past three years.


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