Tuesday, September 20, 2016

Gold Exposure For Superannuation Without An SMSF

I have written on gold exposure in superannuation without the need for a Self Managed Super Fund (SMSF) in past articles here, for example some funds allow direct equity investment. IOOF Employer Super (previously know as Spectrum Super) is one such fund and has a fairly extensive list of direct shares and securities (including gold miners and PMGOLD).

As mentioned in a recent post I have added gold related positions to my super the last couple of years with Silver Lake Resources (SLR), Medusa Mining (MML), Norther Star Resources (NST) and since then Regis Resources Limited (RRL), but not everyone wants to expose themselves to the risks associated with miners. Not everyone wants a level of involvement in their super investments such as that which is required to pick miners or work out what allocation they should have to gold.

What is a conservative allocation to gold in your superannuation fund anyway? 5%? 10%? How does 25% sound...
"The Permanent Portfolio is an investment strategy developed by Harry Browne in the 1970s that advocates splitting your money equally across four assets – cash, gold, equities and bonds – and rebalancing back to that split whenever they diverge too much. Mainstream financial planners would probably balk at a 5% allocation to gold, let alone 25%, but how does such a strategy perform in reality and could you get your financial planner to consider it?

For Australian investors hard numbers on the Permanent Portfolio strategy can be found by looking at the Cor Capital Fund, run by Davin Hood. His latest Quarterly Report is out and his fund’s performance, as summarised in the chart below, I think justifies giving the strategy some consideration."
The above written by Bron Suchecki in 2015 was paired with a chart which I have taken the liberty of updating for this article:

Click Chart to Enlarge
Bron continues:
"It is important to note that the blue line is the theoretical performance of the strategy before the fund started and the white line is its actual performance. What is clear from this chart is the low volatility of the fund’s performance – yes, you don’t get big gains (as the Australian Equities line shows in 2006 & 2007) but nor do you get the big losses (as happened in 2008). For those looking for a consistent and safe investment plan for the long run, this chart shows that the strategy has merit.

Part of the performance comes from not just the choice of asset classes to allocate to but the disciplined rebalancing between those asset classes. Unless you are willing to hold all of these asset classes, and sell those which are up and buy those which are low, the strategy probably will not work as indicated.

Unfortunately, if you are looking for someone else to be that disciplined investor for you, Cor Capital is currently limited to sophisticated/wholesale investors, which means, for example, an initial investment of $500,000."
It has been highlighted to me that this fund is now far more accessible for Australian investors, particularly for those with an interest to buy in through super. You can allocate as little as $1000 to the Cor Capital Fund if you have at least a $5000 super account balance.

As briefly described on the ABC Bullion website:

1). Open a brightday Complete Super Account
2). Transfer some or all of your Superannuation to brightday
3). Invest in the Cor Capital Fund

They have a more in depth brochure available here.

On seeing this, my first thought was to take a look through the Cor Capital Fund PDS (cynical I know). A number of risks associated with gold were listed (price risk, government risk e.g. change in laws), but interestingly saw no mention of custodian risk and the only mention of how the gold was held, "Physical gold is held in professional bullion vaults on our behalf."

I sent an email to enquire how the gold is stored and received a prompt reply from the Portfolio Manager (Davin Hood): 
"The Fund precious metals allocation (25% approx.) is currently 99.8% in physical gold and we keep about half in Perth at the Mint and half in Sydney at Custodian Vaults (ABC)."
I do like that the fund has a conservative approach even with the storage of it's gold, diversifying across the two companies and locations.

I don't have any intention in the near future to move a portion of my super into this fund, however it looks like a reasonable option to consider for those who want to have exposure to gold as part of a diversified portfolio in their super.


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