Investors Rush to Snap Up Gold Funds as Price Bounces

As investors sought to allocate their 2015/16 ISA and SIPP allowances, they turned to gold and UK equity income investments. We reveal the funds they favoured

Karen Kwok 7 April, 2016 | 5:00PM
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This article is part of our Guide to Maximising Your Pension, helping investors build up the maximum possible pension pot – and turn it into the maximum possible retirement income. 

Investors are welcoming gold funds back into their portfolios in a big way, encouraged by significant gold price rally and a low interest rate environment, Morningstar data shows. The gold price has rallied 16% year to date, and the funds in the precious metal equities sector are feeling the benefits.

Woodford Equity Income has remained on the most popular list for 10 months

The precious metals equity fund sector posted inflows of £193 million from December 2015 to February this year; its largest quarterly inflows in nearly three years as expectations for an interest rate rise in the UK faded. Omitting the inflows in December, the sector recorded a massive inflow of £185 million in the first two months of this year, according to Morningstar Direct.

Within this sector, BlackRock Gold and General Fund gained the largest inflows of £46 million, helping to push inflows into this sector to £89 million in February alone. This Gold Rated fund has clearly captured investors’ attention continuously, being one of the most popular funds on Morningstar.co.uk over the past three months.

Fund flows into the precious metals equity sector over the past three years

This fund has generated return by 45.4% year to date, a boon to long term investors who have suffered annualised losses of 14.1% over the past five years. Morningstar analysts believe that this fund is one of the best offerings available for those seeking exposure to gold-related equities. The fund’s performance has been strong, with returns substantially ahead of the FTSE Gold Mines Index and the sector average through fund manager Evy Hambro’s tenure to the end of February 2016. In addition, the fund is not overly expensive with an ongoing charge of 1.9%, which is in line with the category median.

Investors Still Favour UK Equity Income Funds

Speculation surrounds UK equity income growth due to dividend cuts by some of the UK’s largest dividend-paying companies, particular in the energy and mining sectors.

However figures show that investors have remained relatively calm in the face of threats, with a continuous interest in equity income funds despite the high weightings in mining and energy companies that hurt UK equities. UK equity income was the second best-selling sector in February this year with net retail sales of £214 million, figures from the Investment Association showed. Woodford Equity Income, recorded a £179 million inflow in February alone according to Morningstar Direct.

This Bronze Rated fund had also remained on top of the most popular list among Morningstar readers for 10 consecutive months. The fund is managed by Neil Woodford, “one of the most talented and experienced fund managers in the UK”, Morningstar’s Daniel Vaughan said.

Investors have also kept an eye on another UK equity income fund, Invesco Perpetual High Income Fund, a Bronze Rated fund that was previously managed by Neil Woodford. The fund has now a 10.7% five year annualised return, under the management of a “skilled UK equity investor” Mark Barnett, Vaughan said.

A global equity income fund, Schroder International Selection Fund Global Dividend Maximiser Fund also proved popular among Morningstar readers in March 2016. The fund has gained 3.1% year to date, and it has a 6.8% five years annualised return. It is not rated by Morningstar analysts. 

Justin Cooper, chief executive of Shareholder solutions, part of Capita Asset Services encouraged income investors to “find the gems in the rough” despite of fear over dividend cuts among companies as “a few very large dividend payers are skewing the pictures”.

“We still expect strong dividend growth to come through from companies better insulated from these negative global trends, with mid-caps likely once again to outperform the top 100,” Cooper said.

JP Morgan global market strategist, Michael Bell agrees, saying: “Equities still offer an attractive income alternative to bonds, with their average dividend yield significantly higher than 10 year government bond yields.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BlackRock Gold and General A Acc1,196.40 GBP0.15Rating
Invesco UK Eq High Inc UK Inc324.96 GBP0.17Rating
LF Equity Income A Sterling Acc3.96 GBP0.00
Schroder ISF Glb Div Mxmsr A Acc USD13.12 USD0.46Rating

About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk