Enhancing Portfolio Diversification with Gold and Silver
February 8, 2018 | (05 mins 44 secs)
Ed Coyne, Executive Vice President at Sprott Asset Management discusses how an allocation to gold and silver can complement equities in an investment portfolio, and why Sprott advocates a 5% to10% allocation for most investors. Coyne also introduces the Sprott Physical Gold and Silver Trust (CEF), which represents the successful takeover of Central Fund of Canada.
Liz Claman: You're watching Asset TV 2018. I'm Liz Claman. There has been an interesting behavioral move in the markets that you don't often see. Equity's skyrocketing, but at the same time gold has also risen in price. Again, this is sort of some type of swan. I don't want to say black because Ed Coyne, perfectly named Ed Coyne of Sprott Asset Management. You love this because as a gold guy, you have seen it all. Does anything either interest you, or surprise you, or worry you about equities rising at the time that gold has been jumping?
Ed Coyne: [0:00:37] Right, right. Well we're all equity investors, right? I personally am an equity investor, that's how you grow your net worth. But people are starting to look at gold in a different light, or the last really decade and a half or so. If you think about early 70s, it was the first time gold could change, you know, could fluctuate in price. And really in the 70s, 80s and even the 90s, outside of large institutions there wasn't really a lot of liquid solutions to invest in gold and gold equities. In the last decade and a half or so you've got ETFs, mutual funds, trusts like that we manage and so forth, as multiple ways to allocate to the space. And so I think you're seeing a fundamental change in how people view gold. Historically people viewed gold verse equities. And I think in the last decade and a half or so with the growth of alternative strategies in general, more and more investors are seeing gold as a complement to equities, it's a way to help diversify their portfolio. So I think, you know, we're not really surprised by that. We like the fact that people are viewing it in that light, and seeing it as a true alternative investment. And gold is performing sort of as expected, frankly, is that, you know, markets are hitting all time highs, the [inaudible], you know, [inaudible] there is no alternative or fear of missing out in the equity markets. You know, that’s starting to get the attention of investors and say, “Where else can I put some capital, but yet still participate in the market?” And I think gold and silver, frankly, are two very logical solutions for that.
Liz Claman: [0:02:00] Are you buying the physical metal, would you recommend that or the miners themselves which have kind of lagged, I guess, you could say over 40 years?
Ed Coyne: [0:02:07] Yes, they have. Yes, I think it's really a multi step process, that's what's actually unique about Sprott is, you know, with three decades of experience, we offer a full suite of solutions in that space. And we really view ourselves as a consultant to the gold trade when we're talking to our advisers and our clients and our institutions out there. We typically say you start with the physical metal, right. It's a way to migrate a portion of capital outside the general stock and bond market. It's a way to get a different performance pattern in your overall portfolio. So we typically recommend starting with the physical metals, whether it's gold or silver. And then you graduate into either the gold equity space through a factor based ETF that we offer or through a long short strategy. And for those actually looking for income, there's a very robust market in the private lending, private debt space in metals and mining as well. So there's a lot of different ways you can allocate to this space.
Liz Claman: [0:02:58] There has been some noise and comparisons or contrasts between gold and Bitcoin.
Ed Coyne: [0:03:03] That's right.
Liz Claman: [0:03:04] That seems a little misplaced to me, but that said, do you own Bitcoin, and what do you think of it?
Ed Coyne: [0:03:09] Sure. I actually do own some myself. And I did it largely because everyone kept asking me the question about Bitcoin, or cryptocurrencies in general. And so I said, “I’d better probably own some, just so I understand it.” And, you know, there's some things I learned very quickly about it. How long it takes to settle, the trade's 24/7, you can buy fractionless shares, all these things that you don't know unless you own it. But what was really ... what really popped for me was cryptocurrencies are not gold, and gold is not cryptocurrencies. It’s very different, you know, cryptocurrencies in general, Bitcoin being just one of thousands now is really a speculative trade in a lot of ways. And if you're a high net worth individual or an institution, that's not where you're putting your money as a store of value, right. You may be looking at is an opportunistic trade to maybe participate. But gold and silver particularly continue to be really a true store of value, a true diversifier in a portfolio. So they're very different.
Liz Claman: [0:04:05] What percentage of a person's portfolio, and I know everybody's different, would you recommend for the basic 35 to 50 year old investor?
Ed Coyne: [0:04:12] Sure. We see as little as 2% and as much as 10. I say that 5 to 10% range is really sort of the ideal mark. Most people aren't going to invest 10% in gold though. The reality is a 5% allocation, is a very effective weighting in a portfolio. And I always tell people that if you're going to allocate to physical metal as a diversifier, you really have to manage that allocation. And what I mean by that is if your 5% allocation becomes 8% because gold has rallied and equities have sold off a bit, you have to be disciplined enough in the coming year to trim that back down to 5%. Conversely, if equities have taken off and gold has sold off a bit, and it's become a 2% allocation, again you have to be disciplined to get it back up to 5%. And if you manage that allocation over multiple market cycles, it's really one of the best alternatives out there in helping dampen your volatility and enhance your risk adjusted rates of return over a full cycle.
Liz Claman: [0:05:05] Yes. And for people of a certain age, like my dad who used to hide gold coins in the wall for when the Nazis might come. I mean psychologically that's what people saw when all goes to [inaudible] you've got a coin here or two to barter. It's wonderful to see you speaking of coin.
Ed Coyne: [0:05:23] Yes, thank you. Thank you for having me.
Liz Claman: [0:05:24] Great to see you, Ed Coyne, thank you so much. Good look at Sprott.
Ed Coyne: [0:05:26] Yes, thank you.
Liz Claman: [0:05:27] Great to see you here on Asset TV. When we come back, we've talked a lot about protectionism, when it comes to what's going on in trade, isolationism, why you should do not this. Do not isolate your portfolio. We're coming right back.
Insights from Sprott
More Insights from Sprott
Past performance is no guarantee of future results. You cannot invest directly in an index. Investments, commentary and statements are that of the author and may not be reflective of investments and commentary in other strategies managed by Sprott Asset Management USA, Inc., Sprott Asset Management LP, Sprott Inc., or any other Sprott entity or affiliate. Opinions expressed in this commentary are those of the author and may vary widely from opinions of other Sprott affiliated Portfolio Managers or investment professionals.
This content may not be reproduced in any form, or referred to in any other publication, without acknowledgment that it was produced by Sprott Asset Management LP and a reference to sprott.com. The opinions, estimates and projections (“information”) contained within this content are solely those of Sprott Asset Management LP (“SAM LP”) and are subject to change without notice. SAM LP makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, SAM LP assumes no responsibility for any losses or damages, whether direct or indirect, which arise out of the use of this information. SAM LP is not under any obligation to update or keep current the information contained herein. The information should not be regarded by recipients as a substitute for the exercise of their own judgment. Please contact your own personal advisor on your particular circumstances. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Sprott Asset Management LP. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell. SAM LP and/or its affiliates may collectively beneficially own/control 1% or more of any class of the equity securities of the issuers mentioned in this report. SAM LP and/or its affiliates may hold short position in any class of the equity securities of the issuers mentioned in this report. During the preceding 12 months, SAM LP and/or its affiliates may have received remuneration other than normal course investment advisory or trade execution services from the issuers mentioned in this report.
SAM LP is the investment manager to the Sprott Physical Bullion Trusts (the “Trusts”). Important information about the Trusts, including the investment objectives and strategies, purchase options, applicable management fees, and expenses, is contained in the prospectus. Please read the document carefully before investing. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. This communication does not constitute an offer to sell or solicitation to purchase securities of the Trusts. You will usually pay brokerage fees to your dealer if you purchase or sell units of the Trusts on the Toronto Stock Exchange (“TSX”) or the New York Stock Exchange (“NYSE”). If the units are purchased or sold on the TSX or the NYSE, investors may pay more than the current net asset value when buying units or shares of the Trusts and may receive less than the current net asset value when selling them.
The risks associated with investing in a Trust depend on the securities and assets in which the Trust invests, based upon the Trust’s particular objectives. There is no assurance that any Trust will achieve its investment objective, and its net asset value, yield and investment return will fluctuate from time to time with market conditions. There is no guarantee that the full amount of your original investment in a Trust will be returned to you. The Trusts are not insured by the Canada Deposit Insurance Corporation or any other government deposit insurer. Please read a Trust’s prospectus before investing.
The information contained herein does not constitute an offer or solicitation to anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada or the United States should contact their financial advisor to determine whether securities of the Funds may be lawfully sold in their jurisdiction.
The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering or tax, legal, accounting or professional advice. Readers should consult with their own accountants and/or lawyers for advice on their specific circumstances before taking any action.
© 2022 Sprott Inc. All rights reserved.