Own gold as government and central banks erase downside risk – Forstrong Global
With government and central bank policies backstopping the global economy, now is time to get a little more aggressive in equity markets, according to one portfolio manager.
In an interview with Kitco News, Robert Duncan, senior vice president and fund manager at Forstrong Global said that his firm was buying equities in March when other investors were panic selling as the global economy ground to a halt because of the COVID-19 pandemic.
Duncan explained that it was difficult not to buy equities in March as the Federal Reserve acted quickly and committed to doing everything it could to support the U.S. economy, bringing interest rates down to zero and introducing unlimited quantitative easing measures.
“Clearly, the U.S. government and federal reserve were the fastest to respond with the largest stimulus packages in the world,” he said. “When you present that, it's going to have a great response from markets because investors see governments wiping away downside risk.”
He added that although they remain overweight risk in their portfolios, they are also now including more defensive positions, including more gold, in their strategy as the recovery from the latest economic crisis looks a little more difficult.
“We've already kind of had that V-shaped recovery, and we do think that there's opportunity for this market to continue to run, but from our perspective, we are being a little bit more on the defensive side. So we have raised cash in the portfolios,” he said.
Looking at gold, Duncan said that they own some of the physical metal as a hedge against impending inflation as a result of central bank and government action. However, he added that they see more value in gold producers, adding there has been a breakdown between the miners and the price of the physical metal.
“When we looked at gold in the portfolio, clearly there was a bias to the physical, but looking at what had transpired in equity markets and all the panic selling, we said there was a massive disconnect. There was a greater opportunity for a play on senior producers within the gold sector.”
Along with more exposure to cash and gold, Duncan said that a major investment theme they see playing out in markets is an even bigger reach for yield.
“We think that there's going to be a complete oversupply of government bonds for the next several years, which is going to keep yields depressed. So from that perspective, in order to try and get an adequate sense of yield, we're going to have to look outside borders and find exposures that are going to help give us that yield, but still also offering quality,” he said. “Some higher quality U.S. corporates, are sufficient and even emerging market debt is also quite sufficient.”