Investing in gold: 3 fund ideas to diversify a portfolio

When the stock market is performing poorly, investors will often use gold to help diversify their portfolios. This is because the price of gold can behave differently to shares.

Gold is a finite resource. You can’t make it in a factory. The relatively fixed supply (it takes time to find and dig up more gold) means that prices are very sensitive to demand.

This means that the price of gold doesn’t always move in the same direction as share prices. In fact, quite often it will increase in price when share prices fall. But of course, this isn’t guaranteed.

The reason the price can move in different directions is because when things become uncertain in stock markets, investors sell shares and want to buy something with a value that’s considered ‘safer’.

Gold’s a popular choice because it’s recognised globally as something of value. It’s also highly liquid, so you can buy and sell it quickly and cheaply. So, it can be a useful diversifier in a portfolio, particularly during periods of market stress.

But it does come with risks. Prices can sometimes be volatile, affected by things like natural disasters, political tensions, or wider economic events like supply constraints.

So, with political risks rising, we see reasons why gold could keep its value over the next year and could be an important component of a diversified portfolio. Remember though, for most investors, your allocation to gold should be smaller than your allocation to shares and bonds.

This is not personal advice, so if you're not sure if an investment is right for you, ask for financial advice. All investments can fall as well as rise in value, so you could get back less than you invest. Past performance isn’t a guide to the future.

3 fund ideas to get gold exposure

Buying physical gold can be expensive and impractical. After all, you don’t want to be storing it under your mattress. But there are alternatives. Here are three fund ideas that provide exposure to the gold price, one via company shares in things like gold miners, one where gold is held as part of a diversified fund and one which looks to track the price of gold over time.

Funds are an easy way to invest, but investing in funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

An investment in a specialist area adds risk, so should only form a small part of a well-diversified portfolio.

Ninety One Global Gold

The Ninety One Global Gold fund aims to deliver growth over the long term by investing in companies around the world involved in gold mining. It also has a small amount, around 10% of the fund, invested in other precious metals, like silver and copper.

The fund is run by industry veteran George Cheveley. He’s been working in the industry for over 30 years and is a specialist in metals and mining. He aims to invest in high-quality companies that are generating strong cashflows and delivering a better return on capital than their peers.

Almost half of the fund is invested in Canada, with the country home to almost half of the world’s publicly listed mining and mineral exploration companies. But the fund also invests globally, from the US and the UK to Australia and South Africa.

The fund is concentrated and has the flexibility to use derivatives, both of which add risk. As this is an offshore fund, you’re not normally entitled to compensation through the UK Financial Services Compensation Scheme.

Past performance isn’t a guide to the future. Source: Lipper IM, to 31/10/2023.

More about Ninety One Global Gold, including charges

Ninety One Global Gold Key Investor Information

Troy Trojan

If you want a fund that has some exposure to gold, but as part of a more diversified fund, this could be a good option.

Troy Trojan aims to grow investor’s money steadily over the long run. It tries to limit losses when markets fall, rather than trying to perform strongly at all times.

Gold typically makes up around 10% of the fund and is one their four 'pillars’ of investment. The managers invest in both physical gold and gold-related investments like companies whose fortunes are strongly linked to the gold price.

While this fund isn’t specifically a gold fund, it does consistently provide meaningful exposure to it. The managers will also change how much they invest in gold based on their level of conviction in the yellow metal compared to other asset classes.

While the fund contains a diverse range of investments, it’s concentrated. This approach means each investment can contribute significantly to overall returns, but it can increase risk. The fund can also invest in smaller companies, which adds risk.

Past performance isn’t a guide to the future. Source: Lipper IM, to 31/10/2023.

More about Troy Trojan, including charges

Troy Trojan Key Investor Information

iShares Physical Gold ETC

Finally, investors can use an exchange traded commodity (ETC). These can be a simpler and more convenient way for investors to access specialist areas like gold. These investments are bought and sold the same way as shares and aim to track the performance of the commodity.

Some ETCs invest in the physical commodity, where the manager handles transportation, insurance and storage costs. Others use derivative contracts to artificially replicate the performance of the commodity, without having to own it. This saves on costs, but it’s a higher-risk approach.

The iShares Physical Gold ETC tracks the gold spot price. This is the current price in the marketplace at which a given security, commodity or currency can be bought or sold for immediate delivery.

This ETC only accepts gold that meets The London Bullion Market Association (LBMA) Good Delivery rules. In-line with these rules, the bars also aim to comply with LBMA’s Responsible Sourcing Programme, making sure that 100% of the gold bullion backing the ETC is responsibly sourced.

With an ongoing charge of 0.12%, it’s also competitively priced in the market versus its competitors. Part or all of the annual charge is taken from capital, increasing the potential for your investment’s capital value to be eroded. This fund uses derivatives which can add risk.

Our platform charge of up to 0.45% per annum also applies.

Past performance isn’t a guide to the future. Source: Lipper IM, to 31/10/2023.

More about iShares Physical Gold ETC, including charges

iShares Physical Metals ETC Key Investor Information