Gold ETF Folios Jump 2.6x in 3 years, outpacing large-cap funds: Report
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Mumbai, Nov 6 : Investors are increasingly chasing the rally in gold prices through exchange-traded funds (ETFs), leading to a sharp surge in assets and raising concerns about deviations from disciplined asset allocation practices, a new report said on Friday.
The data compiled by OmniScience Capital said growth in gold ETF assets under management (AUM) has significantly outpaced that of equity funds, even after adjusting for returns in the underlying asset classes, suggesting that investors are pouring money into gold primarily due to its recent price appreciation.
"We believe this FOMO behaviour would have been similar for any security whose price is rising. This aggressive migration signals a notable departure from structured asset allocation," said Ashwini Shami, President and Chief Portfolio Manager at OmniScience Capital.
The analysis showed that gold ETF folios have expanded much faster than those of equity mutual funds over the past three years.
Since September 2023, the number of gold ETF folios has risen 2.6 times, compared with a 1.3-fold increase in large-cap fund folios.
OmniScience Capital noted that the trend has resulted in gold holdings reaching levels that appear inconsistent with commonly recommended asset allocation frameworks.
Gold is generally classified as an alternative asset and is typically allocated 5-10 per cent of an investment portfolio, with the broader alternatives bucket accounting for around 10-20 per cent.
Other alternative assets include private equity, structured debt, Specialised Investment Funds (SIFs), REITs and InvITs.
According to the analysis, the total AUM of gold ETFs has climbed to nearly Rs 1.9 lakh crore, equivalent to almost half of the roughly Rs 4 lakh crore managed by large-cap equity funds.
The firm said a gold allocation amounting to about 47 per cent of large-cap fund assets appears overstretched and warrants caution.
Shami urged investors to reassess their portfolios and temper expectations for future gold returns.
While maintaining a positive long-term outlook on the precious metal, he questioned assumptions that gold prices, inflation and interest rates would all rise simultaneously in the coming years.
The report also suggested that strong purchases by central banks may not be sufficient to drive gold prices significantly higher if other investors shift towards fixed-income instruments offering more attractive yields.
According to the firm, increasing allocations to short- and medium-duration debt instruments could offset demand from official buyers and help keep global gold prices balanced.
The data compiled by OmniScience Capital said growth in gold ETF assets under management (AUM) has significantly outpaced that of equity funds, even after adjusting for returns in the underlying asset classes, suggesting that investors are pouring money into gold primarily due to its recent price appreciation.
"We believe this FOMO behaviour would have been similar for any security whose price is rising. This aggressive migration signals a notable departure from structured asset allocation," said Ashwini Shami, President and Chief Portfolio Manager at OmniScience Capital.
The analysis showed that gold ETF folios have expanded much faster than those of equity mutual funds over the past three years.
Since September 2023, the number of gold ETF folios has risen 2.6 times, compared with a 1.3-fold increase in large-cap fund folios.
OmniScience Capital noted that the trend has resulted in gold holdings reaching levels that appear inconsistent with commonly recommended asset allocation frameworks.
Gold is generally classified as an alternative asset and is typically allocated 5-10 per cent of an investment portfolio, with the broader alternatives bucket accounting for around 10-20 per cent.
Other alternative assets include private equity, structured debt, Specialised Investment Funds (SIFs), REITs and InvITs.
According to the analysis, the total AUM of gold ETFs has climbed to nearly Rs 1.9 lakh crore, equivalent to almost half of the roughly Rs 4 lakh crore managed by large-cap equity funds.
The firm said a gold allocation amounting to about 47 per cent of large-cap fund assets appears overstretched and warrants caution.
Shami urged investors to reassess their portfolios and temper expectations for future gold returns.
While maintaining a positive long-term outlook on the precious metal, he questioned assumptions that gold prices, inflation and interest rates would all rise simultaneously in the coming years.
The report also suggested that strong purchases by central banks may not be sufficient to drive gold prices significantly higher if other investors shift towards fixed-income instruments offering more attractive yields.
According to the firm, increasing allocations to short- and medium-duration debt instruments could offset demand from official buyers and help keep global gold prices balanced.
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Note: The content of this article is sourced from a news agency and has not been edited by the ap7am team.