Gold has been one of the most recognisable financial assets for thousands of years.
While not the rarest metal, it was coveted due to the challenges finding it and extracting it in large quantities.
It also became the standard by which all currencies were measured.
Today - rightly or wrongly - it is seen as more of a ‘safe haven’ for investors when markets are rife with both economic and geopolitical uncertainty.
I say rightly or wrongly because, while it has a low correlation to many other asset classes and usually does well when everything else is going to hell in a handcart, it can also be volatile.
Indeed, gold has had a turbulent few years.
Having peaked at almost $1,900 per ounce in 2011, bullion lost almost half its value over the next four years, bottoming at around $1,000 in November 2015.
More recently, as geopolitical tensions have risen and the Federal Reserve has become more dovish, gold has been on the charge, having gone past $1,500 an ounce for the first time since 2013.
Part of this turnaround has also been because central banks - which have been underweight the asset class in the past decade - have purchased a record $15.7 trillion of gold in the first six months of 2019 in an effort to diversify their reserves away from the US dollar amid global trade tensions.
This week’s best in class is a truly unique fund offering investors great access to the world of precious metals.
Merian Gold & Silver invests in both physical gold and silver bullion, as well as gold and silver mining companies.
It has been managed by Ned Naylor-Leyland since its launch in March 2016.
Ned joined the company in 2015, having previously worked for Smith & Williamson and Quilter Cheviot.
He is a passionate advocate for his asset class, with almost two decades’ experience of precious metals investing.
The fund's underlying philosophy is that gold is money: Ned believes gold and silver should be thought of as a currency, not a commodity.
The portfolio’s neutral position is 50:50 gold/silver, but Ned will manage the mix, adjusting the relevant weightings according to his view of the world.
In a more defensive scenario the fund will own more bullion and more gold.
In a more bullish scenario the fund will have a greater weight to miners and silver, which have a higher beta and therefore should perform better.
When it comes to researching the mining companies, Ned invests only in those operating in what are generally considered safe regions such as North America and Australia.
And, if a company's management does not have demonstrable track record of successful mine building or production, then he will not invest.
He looks for those that have quality company financials, project viability, management teams and growth potential.
He also runs specific balance sheet stress filter to identify potential funding issues, as the sector is relatively capital intensive.
The physical bullion in the portfolio is predominantly held through the Sprott Physical Gold Trust, Sprott Physical Silver Trust and the Sprott Physical Gold and Silver Trust.
Ned believes the market is currently moving into a participation phase for gold, citing “a dovish US Federal Reserve which, due to a lack of sustained above-target inflation and a definitive US-China trade resolution, is likely to remain highly accommodative”.
He also feels the price of silver is historically cheap relative to gold, adding that “the return profile is roughly double that of gold, meaning that it increases in value much faster than gold when precious metal prices rise” – although the same argument is true when they fall.
Since launch, the fund has tended to have a greater weight to miners over bullion, and silver over gold.
Both these factors have made the fund more volatile and increased the risk, but we believe the manager’s dynamism and willingness to alter positioning to best suit current market conditions makes it a standout option for those looking for low correlation to other asset classes.
Gold and silver make for good diversifiers and Ned firmly believes that investors should hold some gold in their portfolio at all times – just in case.
You do not need to hold enough to fill a vault, just enough to protect against potential central bank policy mistakes.
Darius McDermott is managing director of FundCalibre
