Liberty Ermitage has established an offshore Oeic that aims for capital growth by investing in gold and precious metals.
The Liberty Ermitage gold & resources fund will invest in a combination of gold & precious metal stocks and specialist gold funds. Large caps comprise the largest weighting in the portfolio at 32 per cent, while specialist gold funds follow at 29 per cent. The rest of the portfolio is invested in small caps, mid caps, cash and financing the mining process.
Liberty Ermitage established the fund to capitalise on thebull run within the gold market after three decades of a bear market driven by a strong US dollar. The company says gold markets perform well when equity markets are falling and vice versa. This makes it possible to invest a small part of a portfolio in gold to compensate for losses made on equities.
The current revival in gold's fortunes is also due to demand exceeding supply. A 25-year bear market has led to a reduction in the amount of gold produced from mines. However, Japanese investors are turning to gold as a tangible alternative to the banking system and other countries are building their gold reserves, which is pushing up gold prices.
Despite the perception that gold is a low-risk asset class, it is also very volatile and changes in the price of gold bullion will be magnified in share prices. For example, a 10 per cent movement in the price of gold bullion could equate to a 30 per cent change in share prices.
This is a double-edged sword, as prices could go up or down. However, investors who expose a small part of their portfolio to gold could be compensated for a dip in gold prices by an upturn in equity markets.