By SHAZNI ONG / Pic BLOOMBERG
DIVERSIFYING investment portfolios to gold could hedge against low returns in unit trust after the global markets show signs of recovery, observed analysts.
While investors shed riskier assets, gold prominence as a safe-haven asset has risen with the precious metal trading at seven-year highs at US$1,721 (RM7,452) an oz yesterday as liquidity in the global market was ample.
The prospect of gold shot higher on underlying concerns about the global economic devastation from the onset of Covid-19 and the associated containment measures, said AxiCorp Financial Services Pte Ltd global chief market strategist Stephen Innes.
“Gold prices eased in Asian trading and into the early portion of US action as profit-taking set in after last week’s strong performance, but the market soon reversed its losses and pushed above US$1,700 per oz to new year-to-date highs,” he said in a note yesterday.
Innes noted the foreign-exchange market played little part in the price action as the US dollar was relatively stable.
“There’s lots to like about this gold rally, especially as the central banks are delivering “whatever it takes” to support equity markets, which is driving yields on debt instruments to virtually zero, increasing physical demand for gold and silver as opportunity costs evaporate.
“The US dollar will eventually get watered down, and this could push gold prices considerably higher,” he said.
While volatility will continue to put pressure on the equity market, clients who are prepared to absorb risk would reap the returns when markets rebound in the future, noted Affin Hwang Asset Management Bhd chief marketing and distribution officer Chan Ai Mei.
“History shows us every bull cycle has ended at a higher point than the previous one. But investors will need to be patient and ensure they are still comfortable with the risk they are taking in their investment portfolio.
“If they cannot take further volatility, they could switch to less risky solutions such as bond funds or money market funds which can help them protect their capital from depleting when markets continue to get sold down,” she said.
However, by doing so, Chan said they must be prepared to forego any future upside potential should a rebound happen.
Hence, she said it’s best to ride through the volatility and at every dip, start nibbling back in smaller tranches and stagger their investments over a time period into a diversified pool of funds.
For new investors that are looking to enter into unit trust funds (UTF), Chan opined it is a better time than at the beginning of the year as most equity funds have corrected between 10% and 30%.
“But be prepared for volatility as we don’t have clear visibility on Covid-19. The number of infected cases is expected to rise in the US as testing is ramped-up over the next four to eight weeks, and the coronavirus reaches the acceleration stage of the infection spread,” she warned.
She further said investors who fled UTF investment could likely have made profit before the correction period.
“UTF still provides investors with the most efficient way to gain exposure into stocks and bonds listed across global markets, as well as benefit from active management by professional fund managers,” she said.
While not denying that Malaysia is heading towards recession dragged by the Covid-19 pandemic, Chan noted investors should constantly review their portfolios and more so during this period to assess if they are comfortable with the risk they are taking.
“When markets have corrected, you will enjoy the benefits of entering at a lower level and giving you more units of the fund. So we do not advise investors to stop investing but rather to assess and review their investments.”