Institutional investors across Europe are showing their concern about the future of their equity portfolios after last month's dramatic events in the US.
Within the industry there is talk about the benefits of having a significant exposure to commodities in institutional portfolios, at a moment when the gold and the oil prices, for instance, have gone up.
Although it is still early days to talk about a move towards including more commodities in pension fund portfolios, experts believe that this is a strategy to be seriously considered.
“Commodities are a sector that usually goes up during crisis periods, but in the past we have seen them going down again after a short period,” an analysts comments. “Those pension funds that have an important exposure to commodities have been obviously less affected by the aftermath of the US terrorist attacks, but in general I don't think there is going to be a huge move into commodities from those institutional investors that didn't have this exposure before the events.”
And it seems that, in general, although investors are concerned about the equity markets performance, they are looking at the long term and waiting until things settle down before taking any drastic decision regarding their asset allocation.
Times of uncertainty can trigger investor interest in the gold market.
“First of all I have to say that there has been obviously been a lot of sensitivity about the US events, and there is a clear danger of trivialising the issue by saying this is a good moment to invest in this or that, and this is something we don’t want to do,” says Robert Weinberg, head of institutional investment at the World Gold Council in London. “We've been arguing for a number of years that gold is a credible and sensible alternative investment and it represents a very effective means of portfolio diversification.
“We do not position gold as a stand alone asset class but as a portfolio diversifier,” he says. “It is very useful to make performance more consistent in times of both stress and non-stress environments.”
Weinberg explains: “If you have a benign market and you create a very aggressive portfolio and then something horrible happens you find that the risk goes way up and your performance goes way down. But, at the same time, you can find a very conservative portfolio that when the market are strong is going to underperform.” He adds: “So the strength of gold is in balancing this out and making portfolios more robust.”
Weinberg points that there is a increasing interest among institutional investors in alternative investments and funds of funds, “and this is the sort of area where gold should be positioned”.
“It is still an overlooked and undervalued asset class,” Weinberg says. “Because a lot of investors don’t follow the gold market, they don’t understand it and therefore they don't invest in it . So we have a long education process ahead.”