Commodities and gold have been the only asset classes providing positive returns to sterling investors in the first half of the year.
According to research by international investment consultant Asset Risk Consultants (ARC), 14 out of 16 asset classes have suffered losses in the first six months of 2022.
Commodities and gold were the only exception.
Natixis Investment Managers found in a survey published in June that financial advisers are increasingly seeing commodities as appealing in an inflationary investment.
In fact, 73% of European advisers and 61% of their British colleagues shared this opinion.
Broker Physical Gold stressed that the value of gold has doubled over the last decade.
It stated: “In times of recession, money is typically withdrawn from investments like stocks and shares, and money itself loses value. Unlike fiat money, the supply of gold is limited and can maintain its value due to its scarcity and enduring appeal as a precious metal.
“Gold has consistently continued to perform well throughout shaky economic times, mainly because its value is retained due to its inherent value, which is not dependent on the revenues or profits of a company.
“As seen in the 2008 recession, the price of gold remained relatively stable throughout the first half of the global financial crisis, before moving up sharply halfway through the recession and peaking at around $1,040/oz.”
According to BullionVault, an ounce of gold is worth £1,453.99 as at 2 August 2022.
Evolution of the price of a gold ounce since 2004
Cohen & Steers: Commodities can counter inflation pressure
Nine asset classes have seen their worst losses over the past six months’ since ARC started monitoring for its indices in 2003.
For instance, US equities recorded a similar fall in the first six months of a year 60 years ago. It was at the time president John F. Kennedy was facing escalating tensions in Cuba between the US and the Soviet Union.
US sovereign debt also recorded the worst first six months for a calendar year since the US Constitution was ratified in 1788. This was a year before the US Treasury was founded.
ARC group managing director Graham Harrison said: “In the context of extremely challenging markets, over the last six months discretionary portfolio managers have generally struggled across all four of the ARC Indices risk categories to contain losses.
“Even top quartile managers have seen negative returns and double-digit losses have been all too common.
“However, our longer-term analysis shows that portfolios more concentrated on certain assets would have been detrimentally impacted the most.”
The average return of the ARC sterling steady growth index for the second quarter was 7.3%.
ARC collects the actual performance of more than 300,000 investment portfolios from more than 100 investment managers. A steady growth portfolio typically has around two-thirds of exposure to equities. The remainder is allocated in other asset classes such as bonds.
Harrison added: “[Warren] Buffett might have meant that concentration is king but another way of looking at this statement is to ask how confident you are that your manager is not among those who have become ignorant of the benefit of diversification. Why refuse the free lunch of reduced risk that diversification provides?”
