returns from gold ETFs: Gold ETF Fund of Funds to provide strategic diversification alternative to investors: Sanjay Bembalkar

Sanjay Bembalkar, Head of Equities, Union Asset Management, says t for many people who buy physical gold, it becomes difficult to sell that gold because there is emotional attachment and also headache of purity, headache of storing the gold. We believe that in such circumstances, it is better to have a liquid portfolio through gold ETF or gold ETF fund of funds and without any emotional attachment,

We have heard about this fund of funds, the second one that you have launched. Tell us a little bit more about this. Also, talk to us about the gold ETFs and the returns we can expect.
Sanjay Bembalkar: We have launched the Gold ETF Fund of Funds with the intention to provide a strategic diversification alternative to investors. We believe that in the current construct of geopolitical uncertainties, monetary policy changes, and tariff wars, gold is a significant asset class to have. We have seen gold historically has negative correlation with the efficiency classes like equities and debt. Gold, being a scarcity asset, it has different drivers than what typically we see in the efficiency assets like equities and debt and that is why we think that investors can use this asset class particularly in current time frames and also from long-term strategic allocation, we believe that it is a fantastic asset class to diversify in and that was the rationale behind launching these funds.

Gold has done very well all through last year and this year, the way markets are performing, gold is a safe haven but gold is also sitting at very record high levels. So, from here on, if an investor wants to get into gold for that margin of safety, is it the right time? Also, what is the upside that you see for this year?
Sanjay Bembalkar: What we have analysed is that in the past three years out of five years, gold has outperformed Nifty as well as on the debt returns. We believe that when there is geopolitical uncertainty, monetary policy changes, and such kinds of time frames are typically very good from the gold perspective. Gold price benefits not only from US dollar gold price but also benefits from USD-INR changes.

The currency volatility also adds or reduces from the gold returns as the case may be. Currently, if we look at the US dollar appreciation and currency depreciation, gold in rupees terms has benefited from that move. We believe that considering the overall situation where central bankers have been significant buyers in gold in the last two years, such a trend is likely to continue and that would aid performance of gold over a foreseeable future as well.In the current market scenario, how much of an allocation in terms of percentage of the total portfolio should gold have in a retail investor’s portfolio? Also, what are the advantages of investing in an ETF compared to the gold metal itself?
Sanjay Bembalkar: We dealt with this question when we launched our multi-asset allocation strategy as well. There is a lot of research internationally available which indicates one should have 15% to 18% allocation to gold.

Considering the current situation and India’s position in the global macroeconomic scenario, 15% to 25% allocation should be considered by the retail investors and that is why even in our multi-asset allocation strategy, we have 22% allocated to gold. There are two or three routes to own gold. One is a physical metal as you highlighted or owning a paper gold through either gold ETF or gold ETF fund of funds.

We believe that when we own a paper gold in gold ETF or gold ETF fund of funds perspective, there is no emotional attachment and I have seen that for many people who buy physical gold, it becomes difficult to sell that gold because there is emotional attachment and also headache of purity, headache of storing the gold. We believe that in such circumstances, it is better to have a liquid portfolio through gold ETF or gold ETF fund of funds and without any emotional attachment, that would be crucial from the investor’s perspective.