Tuesday, April 20, 2004 GOLD bullion may become investors' weapon of choice against volatility in the next 10-20 years, given a growing superannuation industry, the rise of small super funds, an aging population, and expected lower returns from equities over the next decade, PricewaterhouseCoopers says.
PricewaterhouseCoopers Actuarial director David Knox said the superannuation industry grew from about $220 billion to $550 billion between mid-1995 and September 2002, an average of around 11% per year, and is pegged to grow by 10% to 12% per year for the next 10-15 years at least.
"For at least the next 15 years we're going to have more investments put into super than may be taken out," Knox told delegates at the Australian Gold Conference in Perth yesterday.
Small super funds with fewer than five members, also called do-it-yourself or household funds, have significantly grown in number in the last eight, years he said, with around 275,000 of them existing currently.
Knox expected the trend to continue, and said it means fund members will increasingly control investment choice.
"Where do they want their investments, what are they concerned about? Their risks might be quite different from the employers who ran the corporate [super] funds 10 years ago," Knox said.
He said it's likely small funds will want non-negative returns that do better than CPI, and therefore will need to have something in place to reduce the risk of negative returns.
With equities composing more than 60% of many funds already, Knox said diversification is likely to be increasingly on the cards.
"Where is the new money going to go? We can't put more into equity, we need a bit of spread, a bit of diversification," he said.
Another factor in the equation is that by 2030, half of household wealth will be held by householders over the age of 65, according to Knox. He asked, "Will ageing households be conservative in their attitudes towards investments?"
Knox believes that, taken together, these points mean that individual and household super funds may seek alternative forms of investment in future, such as gold bullion.
"Our research suggests that investment of, say, 5% in gold bullion is very useful in periods of stress. In a period when other investments are going backwards, history suggests that gold will have a positive impact on the investment returns," Knox said.
He showed that including 5% gold bullion in a portfolio during 1997-2002 would have reduced volatility with almost no impact on returns compared to a benchmarked portfolio.
"There is a place to consider gold bullion … that's why I call it a minor asset class. I wouldn't put half the fund in it, but I think there is a role for gold bullion."
"In terms of the gold industry, I think there is an opportunity there to get out and make that known … for super fund members, for trustees, for individuals. There is potential." END
OXR Price at posting:
0.0¢ Sentiment: None Disclosure: Held
