The Baring multi-asset fund is holding long-dated US government bonds because it is one of few areas to buck the trend of an increasing correlation between asset classes now that gold no longer works as a diversifier.
Investment manager Andrew Cole says the multi-asset fund is run on the premise that whatever asset you own at any given moment will be a key determinant of performance rather than extra added value the asset can deliver.
He says that over the last 10 years, this has meant that whether you own equities or bonds is the major investment decision, rather than whether you can get an extra 5 per cent return from bonds or from equities.
In Cole’s experience, the relationships between various asset classes are not stable, so markets will be more volatile as these relationships change. The reasons for a multi-manager to hold an asset in a portfolio will also change.
Cole says the reasons for holding gold now are different to the reasons for holding it in 2007, when it was uncorrelated to other asset classes. Gold was attractive as a means of diversification in 2008 but Cole says it now goes up and down with other assets.
He says: “The notion of gold being used to offset risk elsewhere in the portfolio is no longer appropriate. Gold now goes up and down with other risk assets like corporate credit. You can still build a long-term case for it, but it is no longer a diversifier.
“Assets are highly correlated and the only assets that have bucked the trend are long dated US treasury bonds, long-dated German bunds and UK gilts.”