– Sovereign wealth funds investing in gold for long term returns – PwC
– Gold has outperformed equities and bonds over the long term – PwC Research
– Gold is up 6.7% and 6.8% per annum over 10 and 20 year periods; Stocks and bonds returned less than 5.2% respectively over same period (see PwC table)
– From 1971 to 2016 (45 years), “gold real returns were approximately 10% while inflation increased 4%”
– Gold also valuable due to lack of correlation and hedge against inflation, currency devaluation and uncertainty
– Sovereign wealth funds investing 23% of assets under management to alternative investments including gold
– Gold being diversified into by HNW, family offices, institutions, pensions, sovereign wealth funds and central banks
Source: PwC Research via Bloomberg and WGC data
In new research, entitled ‘The rising attractiveness of alternative asset classes for Sovereign Wealth Funds‘ PwC explain how gold is viewed as an important diversifier by sovereign wealth funds, as both an important hedge and for long term returns.
PwC now class gold as a ‘re-emerging asset class’ on the basis of its long-term out performance of stocks and bonds, low correlation with traditional assets, resilience and high liquidity.
Gold along with private equity, real estate and infrastructure now accounts for 23% of a total $7.4 trillion of assets under management by sovereign wealth funds.
The report notes that from a peak of 40% in 2013, sovereign wealth funds’ investment into fixed income instruments such as government bonds declined to 30% by 2016. Due to record low bond yields, the funds decided to turn their attention to alternative assets to enhance returns.
The report notes the impressiveness of both gold’s long-term performance and low correlation to other assets in the long-term, compared to other alternatives. In the short-term the benefit of gold’s liquidity is noted:
“[It] has one of the highest rates of daily volumes exchanged and can provide protection against short and medium term market corrections.”
The 23% allocation is expected to increase going forward, despite slight increases in rates recently and because of the likelihood of continuing very low interest rates.
This report comes at a time when we are seeing a growing interest by both large institutions and family offices in gold investment.
Like sovereign wealth funds, they are encouraged by gold’s long-term returns, high liquidity and resilience against economic shocks.
Long term outperformance to traditional asset classes
As we have seen in recent years gold, like all assets, has periods when it underperforms. This has been in the short-term in the last 3 to 5 years, but in the long-term – such as a 10, 20 or 40 year period, it is an entirely different story.
Indeed, gold’s recent underperformance, makes its long term outperformance all the more impressive.
The report shows that in the last ten years, gold delivered returns of 6.7% per annum, outperforming equities and bonds which returned just 4.9% and 4.5% respectively. This return was slightly greater over a 20-year period when gold returned 6.8% per annum, compared to equities and bonds which returned just 5.2% and 5.2%.
Over the long term, gold is one of the top three performing assets along with real estate and private equity.
“Gold’s long-term performance is attributed to three factors: increased demand from emerging markets, central banks becoming net buyers, and the emergence of new products, such as gold-based ETFs, which have simplified inv