Gold Has Outperformed The S&P 500 Since 2001 – Sprott
(Kitco News) - With investors searching far and wide for positive market gains, one portfolio manager is “puzzled,” as to why gold continues to be ignored and shunned.
Trey Reik, senior portfolio manager at Sprott Asset Management, noted that gold has had an impressive run since 2001, significantly outperforming the S&P 500.
“Gold has generated positive annual returns in 14 of the past 17 years. What is even more impressive is gold’s performance compared to the S&P 500 Index…,” he said in a report Tuesday. “Gold’s compound annual growth rate (CAGR) for the 16.75 years (2001 to 9/30/17) stands at 9.68% versus 6.01% for the S&P 500 Index (dividends reinvested).”
With equity valuations stretched near record levels, Reik said that the argument to include gold in a balanced portfolio is stronger than ever. He added that during the dotcom crash between 2000 and 2002 and the financial crisis from 2007 and 2008, the S&P corrected more than 50%, and gold provided “unrivaled protection” for investors.
“We are aware of no reasoning to suggest gold’s portfolio-protection benefits will prove any less potent during the next correction in U.S. equities,” he said. “Gold has done a masterful job of insulating portfolio capital from sharp declines in U.S. equities during the past three decades of financial crises.”
One of the reasons why gold has been a safe-haven during turbulent times is the fact that it has a low correlation with other traditional asset classes, said Reik. He added that the precious metal also holds its own against high-profile alternative indexes.
The question now remains: how does an investor incorporate gold in their portfolio. Reik said that through their research, the recommended allocation is between 2% and 9%.
“Broadly speaking, the higher the risk in the portfolio, whether in terms of volatility, illiquidity or concentration, the larger will be the modeled gold allocation to offset that risk,” he said.
Reik’s comments come as gold struggled to break out of a two-week trading channel as prices hovered below the key psychological level at $1,300 an ounce. December gold futures last traded at $1,276.20 an ounce, down 0.43% on the day.