More glitter: Multi-asset allocation funds burnish gold's safe-haven appeal

Worth its weight in Gold: Saw portfolio increase of 1-6 percentage points in November-December 2022

Multi-asset allocation fund managers have raised the allocation towards gold in the past few months, given the optimistic outlook for the yellow metal amid a slowdown in the global economy.

An analysis of multi-asset portfolios shows that a majority of the schemes have raised the weight of gold in their portfolios between 1 percentage point and 6 percentage points in the November-December 2022 period.

“We have decreased our directional equity portion meaningfully in the past few months due to higher valuation. Exposure to gold has gone up as a shift in the interest-rate cycle or expectations of it have historically increased the attractiveness of gold as an asset class,” says Devender Singhal, executive vice-president, fund management research, Kotak Mahindra Asset Management Company (AMC).

Multi-asset allocation funds are a type of investment fund investing in various asset classes, such as stocks, bonds, real estate investment trusts, and commodities (mostly gold). The specific combination of asset classes and the percentage assigned to each class vary from scheme to scheme. The allocations also differ based on taxation.

An equity-oriented multi-asset fund will always maintain at least 65 per cent allocation in equities to qualify for equity taxation. Such schemes have limited room to apportion to other asset classes. Schemes designed for debt taxation have greater flexibility to move the funds between assets.

“For a balanced portfolio, allotment to various asset classes is a must. The presence of equity brings in an element of growth. International equity provides the opportunity to invest in megatrends. Debt helps generate stable returns. Gold acts as a potential hedge against inflation,” says Chintan Haria, head-investment strategy, ICICI Prudential AMC.

The rising weight of gold in multi-asset allocation funds is in line with expectations of gold doing well in 2023. Gold prices are projected to reach Rs 60,000 per 10 grams as investors are expected to veer towards safe-haven assets amid global economic uncertainties this year. Brokerages say gold is likely to benefit from a weakness in the dollar after a pause on rate hikes by the US Federal Reserve.

“Chinese economic growth should improve and boost consumer demand. The concern over weaker global economic growth and geopolitical tensions will make gold valuable as a hedge against uncertainties,” said ICICIdirect in a report.

According to Axis Securities, gold will continue to have an edge over other asset classes until a clear direction emerges at the macro level of the geopolitical crisis, inflation, and commodity prices.