For jittery investors, all that glitters is gold ETF

MUMBAI: RISING demand for gold, low production and firm prices are prompting investors to load up on the yellow metal in their portfolios like never before. This is despite gold appreciating 22% over the past one year. Gold exchangetraded funds ( ETFs) have been the biggest beneficiaries of this gold rush.

Gold ETFs, as a segment, have seen huge institutional and retail interest over the past few months. While gold ETFs buy units of gold, goldbased fund-of-funds (schemes that invest in other schemes) invest in gold through gold ETFs.
The (NAV-adjusted ) asset under management of Gold Benchmark ETFs, by far the most popular among institutional investors, has shot over 12% in September alone. Asset bases of HDFC Gold ETF and Kotak Gold ETF surged 79% and 38%, respectively, last month. The asset base of the recently-launched ICICI Pru Gold ETF has gone up from a little over 17 crore in August to 87 crore in September, marking a (NAV-adjusted ) gain of over 400%.

“The number of ETF investors is increasing. We’re beginning to see good retail participation in the segment. Liquidity in gold ETFs has increased significantly over the past few sessions; this has reduced the impact cost (on gold ETFs) greatly,” said Rajan Mehta, executive director, Benchmark Asset Management.

According to Mr Mehta, investors are buying government will not have a choice, but to print more dollars to arrest recessionary pressures and meet stimulus package requirements. This is undermining sentiment for the dollar, and since gold prices have a strong negative correlation to dollar gold on the back of past returns. At 19,450 per 10 gram on Wednesday, gold has returned over 16% since January , outperforming equities (denoted using Sensex) as an asset class by over 3%.

Gold demand rises in times of financial turbulence, say investment advisors. The general assumption is that the US value, the yellow metal should do well in such a scenario, say investment advisors.

Fears of inflation getting out of control towards mid-term next year are also making a strong case for investments in gold. Commodity analysts are expecting gold prices to correct up to $1,270 levels, which is seen as a support level. On the upper side, analysts expect gold prices to rise to $1,600 level in a year’s time.

“Investors are sensitive about higher prices, but demand (for gold) has been growing at a whopping 90-94 % every year,” said Ritesh Jain, head, fixed income, Canara Robeco Mutual Fund, which launched a multi-asset class fund (debt, equities and gold fund) a couple of months ago.

“The increase in flows to gold ETFs could also be attributed several gold-based fund of funds (FoFs) launched in July and August. These FoFs — post-fund launch — would have deployed significant chunks of money in gold ETFs,” added Mr Jain. UTI MF, Reliance MF, HDFC Mutual, ICICI Pru Mutual, IDFC Mutual, Birla Sunlife Mutual Fund and Religare MF are among fund houses that had launched gold-based funds and ETFs in July and August. Almost all these funds mobilised money in the range of 20-100 crore.

While most gold ETFs have logged oneyear-returns in excess of 20%, gold-based mutual fund schemes that primarily invest in mining companies are yielding to 10-13 % on an annual basis.