Turning insights into investment
Jérôme Chagneau Head of Systematic Strategies
Q7.
Jérôme, why did we decide to set up a physical gold strategy in 2020?
Keeping in mind the long history of gold in the Rothschild family we wanted to continue to offer a smart and efficient way to invest in this asset class for our clients. There are many investment strategies on the market for gaining exposure to gold. From the beginning we were clear that we wanted to give our clients access to a strategy which sits comfortably alongside our principles of long-term wealth preservation and to be as close as possible to the traditional notion of investing in physical gold.
Q8.
What are the benefits of investing in gold funds?
As mentioned by Kevin, we believe that physical gold fund strategies can add an additional layer of security. For instance, at Rothschild & Co:
- Gold bars are stored in high security vaults in Switzerland and insured;
- Investors are protected through an independent auditor and regulator and are not exposed to issuer risk since our strategy's assets are legally separated from the bank’s assets,
- Commodity lending is prohibited under the strategy,
- Fund units from this type of strategy are backed with physical gold in standard bars in compliance with the London Bullion Market Association (LBMA).
Of course, before committing to a strategy you should always check these details with your Bank. It's worth noting that compared to indirect gold strategies, the redemption in kind for a physical gold strategy is extremely simple for clients as the gold is held in a vault. At Rothschild & Co, we buy standard bars (12,5 kg bars) which also reduces the transaction cost as the production costs of standard bars are cheaper than those of smaller lots.
Q9.
Where do you see gold fitting best in portfolio construction?
While there's no one-size-fits-all answer, a 5% to 20% allocation to gold is well supported with a time-tested approach to asset allocation. This should be enough to provide significant diversification benefits and protection against inflation, market volatility and geopolitical risks
Q10.
What would your final word for clients be?
Take the time to get to know this asset class and those who know it. As noted by our Global Investment Strategist, Gold has been around for millennia, so it is not going anywhere fast, which is part of its appeal - it endures. Since the Covid-19 crisis we have seen clients' interest in real assets increase and this has translated into growing inflows into our gold strategies. This is not an investment for a short-term mindset but for the investor looking to diversify their assets as part of a long-term strategy to preserve and growth their wealth for generations.