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LGT Vestra US

CIO Question Time – CIO Question Time – Gold and a populism - Feb 2017

Jonathan Marriott – Chief Investment OfficerIs gold still a safe haven asset?

Gold has had different drivers at different times so my first response is to answer this question with another, “a ’safe haven’ from what?”

Gold has been a traditional store of value and for hundreds of years was, along with silver, the principle trading currency. Currencies were fixed to a gold standard but this is no longer the case. With that said, gold is still seen as a major store of wealth in some countries, India and China in particular. Gold has been seen as a way of protecting against inflation. Since gold does not have an interest rate attached, low interest rates have made it less expensive to hold. Rising inflation may lead to higher interest rates which, to some extent, would counter the deemed inflation protection.

Many things that are seen as drivers of the gold price in the past, such as low interest rates or inflation, have not worked consistently. However, if you are looking for a safe haven at times of political upheaval or financial collapse then gold may still have a role to play. This is based on its physical attributes, portability and immutability, rather than on any particular economic arguments.

How have you adapted your investment strategy in the face of rising populism?

Over the past year or so, there has been a rise in populism in much of the developed world as the disenfranchised have turned against the ruling establishment. The UK voted to leave the European Union, the US elected Donald Trump and there has been a notable shift towards anti-establishment parties in several major European economies. Ahead of elections this year, support is growing for Marine Le Pen in France, for Geert Wilders in the Netherlands and for right-wing party, Alternative für Deutschland, in Germany.

We are conscious of the potential effects that populism may have and consequently have carefully considered the possible policies which might impact our holdings. However, we believe it is important not to be swayed by speculation on Brexit breakup arrangements or on US tax policy changes, until they are official. Also, one must remember that despite growing support in Europe, the anti-establishment parties are not yet in power.

We have confidence in our stock selection of quality companies who can compound growth over the long term and in our portfolio managers who have excellent track records through many economic and political cycles. If we deem that populist policies are likely to have a substantial impact, then we will carefully assess whether the effect is passing or longer term before we make any changes to our investment strategy. With so much uncertainty in the political sphere, we are careful of extrapolating the day-to-day news too much and stick to our core investment approach unless certain that the fundamentals have changed. As active managers, we strive to generate value for our clients over the longer term whilst looking through the short term noise.

 

 

 

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