Seven Investment Management (7IM) has reported that its gold exposure is currently at its highest ever level due to the firm’s “risk off” positioning as a result of perceived elevated risks in the stock market. 7IM’s gold holdings (15.4 tonnes) is now greater than a number of countries including Ireland, United Arab Emirates and the Czech Republic. The discretionary fund manager uses physically backed exchange-traded commodities (ETCs) from Source and iShares to obtain gold exposure in its range of funds and managed portfolios.
7IM has increased exposure to the safe haven asset to record levels due to an environment containing “a sea of negatives, which at some stage the market will overreact to”.
Ben Kumar, investment manager at 7IM, commented: “We own 15.4 tonnes of gold. That is 28 cubic feet, which would take up about half the space under my desk. If we were a country, we’d be ranked 63 out of 102 in the gold rankings. Britain is number 17, with the United States in first place.
“We access gold via physically backed passive structures – ETCs (exchange-traded commodities). We like the security of knowing that our gold exposure is backed by a vault of gold, mostly through Source Physical Gold (LON: SGLD), but with some exposure to iShares Physical Gold (LON: IGLN).”
SGLD is denominated in dollars. The fund was launched in June 2009 and has assets under management (AUM) of $4.6bn with a total expense ratio of 0.29%. IGLN is also denominated in dollars and was launched in April 2011. IGLN has AUM of $2.6bn with a TER of 0.25%.
The largest Europe-listed gold ETP is the ETFS Physical Gold (LON: PHAU) which was launched in April 2007 and has AUM of $5.9bn with a management fee of 0.39%.
Gold ETCs have been strong performers recently, with investors turning to the safe haven asset due to rising global tensions and rising inflation. SGLD has returned 4.5% in the month to 15 August 2017. Physically-backed gold ETCs offer investors a more convenient way to gain exposure to movements in the gold price than actually buying bullion, with the added security of knowing the product is backed by gold bars in a vault compared to swap-based securities.
With regards to elevated risk levels in financial markets, Chris Darbyshire, CIO at 7IM, added: “Our seatbelts are fastened, but we’re not saying financial Armageddon is imminent: we have a habit of being early in our calls. Today we are faced with a sea of negatives, which at some stage we think the market will overreact to.
“We have Brexit uncertainties, tensions between North Korea and Trump, we have a Polish Prime Minister seemingly intent on becoming a dictator and sanctions in Qatar. Will we see a US trade was with China? It’s another scenario we can’t one hundred percent ignore.”