Hawksmoor Investment management’s multi-manager team has chosen funds investing in gold shares over those with direct exposure to the asset class.
The firm says it is surprised that gold has not performed better in recent weeks, given concerns about the euro, the US and the debasement of currency brought about by an increase in the supply of money through quantitative easing.
Hawksmoor believes the best way to gain exposure to gold in current market conditions is through shares, as valuations are attractive and gold mining companies can make profits even if gold prices do not move.
One potential drawback is that gold shares are more volatile and follow equities rather than gold prices during market setbacks but this does not mean correlation is inevitable.
Fund manager Daniel Lockyer says the gold fund holdings in the Hawksmoor Vanbrugh fund were among the worst performers last month when stockmarkets were strong but it showed the assets were uncorrelated, which is a positive for diversification within the portfolio.
A holding in the closed-ended Henderson diversified income fund has been reintroduced to Vanbrugh at a discount of more than 10 per cent.
The multi-manager says the fund was not bought only on the basis of the discount, as the team also has to feel comfortable with holding a fund as a long-term investment. Lockyer says the Henderson fund provides exposure to loans as well as corporate bonds.
He says: “We have owned it before and we own the Henderson strategic bond fund, so we know the team well. We understand the range of discounts that Henderson diversified income should be trading at.
We think the downside is limited because the fund was trading at a discount above 10 per cent and it invests in fairly stable asset classes.
We are confident the net asset value will remain fairly stable and intend to add value when the discount narrows. If the discount did narrow, we would sell the fund and move on.”