Gold returns to haunt equity managers

Standard gold price in Mumbai market is up 11.7% at Rs 29,910, against Rs 26,780 a year ago

Gold exchange-traded funds (ETFs) have emerged one of the best money-making instruments for mutual fund (MF) investors in the past year. On average, the return has been a little over 11 per cent.

This also happened at a time when investors pressed the exit button from gold and flocked to equities.

Last year, when nearly all fund managers had written off gold as an investment avenue, the metal made a strong comeback and not only outpaced the majority of the equity schemes but also proved fund managers wrong. The price of standard gold in the market here is up 11.7 per cent at Rs 29,910 for 10g against Rs 26,780 for 10g a year before. During this period, the key stock indices, struck by sharp volatility, remained by and large at the same level.

The one-year category average return for gold funds as on Friday was 11.4 per cent. No equity scheme, except small-cap ones, come anywhere near. Large-cap equity schemes offered a paltry 1.8 per cent, multi-cap funds returned 3.2 per cent and mid-cap equity schemes an annual return of 5.4 per cent in this period. “We did not anticipate gold would rebound so strongly and so soon. We did advise our investors to have not more than 10 per cent of their portfolio in gold as an asset class. But, global turmoil and uncertainty creeping in the stock markets over the past year made gold a safe haven and the price shot up,” says the chief investment officer of a mid-sized fund house. He insists gold can't be a substitute for equity in the long term.

Gold ETFs as a category has been seeing outflow on a monthly basis for a little over two years. Fresh gross sales have dried to as low as Rs 1 crore every month. The total of assets dipped eight per cent in the past one year, from Rs 6,688 crore to Rs 6,159 crore in May 2016.

Further, there has been an incessant reduction in the number of investors in gold funds, the total down from 500,000 to a current 425,815.

The dip has been significant, especially as investors flocked over the past year to equity schemes.

Investments in gold earned negative views as after a sharp rally from about Rs 8,000 per 10g to as much as Rs 32,000 for 10g in the later half of 2013, the metal corrected sharply to Rs 25,500 in early 2015 as the Sensex was heading towards a high of 30,000. Fund managers had termed the returns from gold as "aberrations" and forecast it would not be repeated.