City Financial’s Harris makes move into gold

City Financial’s Mark Harris has made a significant move into gold in his multi-manager funds in a bid to hedge his bets against potential volatility in other asset classes.

Mr Harris, who took on the group’s funds of funds from John Husselbee at the start of 2013, said he had put 3-5 per cent of his funds’ assets in both gold production-related equities and a gold exchange-traded fund (ETF), varying across the fund range.

“It’s always difficult to know exactly what the drivers are for gold but the price is at levels we haven’t seen in a while,” the manager said.

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“If macro risks return then it could prove a good hedge.

“I use a quantitative technique which began to show that gold was due a bounce just on a mean reversion basis. I then looked at a number of research papers which showed that gold was deeply unloved and had suffered big outflows, so sentiment was very negative.”

The price of gold has plunged by 26 per cent in the past 12 months, falling below $1,200 an ounce at the end of December.

In addition, data released last week by ETF Securities indicated that gold ETFs had suffered outflows of $38bn (£23.2bn) in 2013, meaning assets under management in these products had almost halved in 12 months once losses had been factored in.

Mr Harris bought into his positions in December and said he had made gains of roughly 5 per cent since the purchase as the gold price bounced back above $1,200 in the first few days of 2014.

Elsewhere in his funds, Mr Harris has exited a position in the SPDR S&P Dividend Aristocrats ETF after strong performance.

“It was a good contributor and lowered our volatility,” the manager said. “The trouble was that people were reaching for yield and valuations were no longer cheap.

“We’re now looking at whether to apply similar volatility-dampening positions in European dividend payers or global pharmaceuticals.”

Since Mr Harris took on the City Financial multi-manager funds on January 1 2013, the Multi-Asset Diversified fund has ranked second in the IMA Mixed Investment 0-35% Shares sector, gaining 10.1 per cent according to FE Analytics.

The Multi-Asset Growth fund gained 15.8 per cent in the same period, ranking in the second quartile of the IMA Mixed Investment 40-85% Shares sector, and the City Financial Dynamic fund has also beaten its IMA Flexible Investment sector average.

In September, Mr Harris’s MultiManager Income and Multi-Strategy funds were merged together, creating the City Financial Multi Asset Balanced fund which sits in the IMA Mixed Investment 20%-60% Shares sector.