Gold ETF Folios Surge 2.6 Times In Three Years; Outpace Large-Cap Funds: Report

Investors are increasingly turning to gold exchange-traded funds (ETFs) to benefit from rising prices. This trend has boosted fund assets and raised concerns over investment discipline, a report said on Friday.

Data from OmniScience Capital showed that gold ETF assets under management (AUM) have grown faster than equity funds. The trend continued even after adjusting for returns in the underlying asset classes. This indicates that recent price gains are attracting investors to gold.

“We believe this FOMO behaviour would have been similar for any security whose price is rising. This aggressive migration signals a notable departure from structured asset allocation,” said Ashwini Shami, President and Chief Portfolio Manager at OmniScience Capital.

The report found that gold ETF folios increased 2.6 times since September 2023. In comparison, large-cap fund folios grew just 1.3 times during the same period.

OmniScience Capital said this trend has pushed gold allocations beyond commonly recommended levels. Financial experts generally advise investors to allocate 5-10 per cent of their portfolios to gold. Alternative assets usually account for 10-20 per cent. These include private equity, structured debt, Specialised Investment Funds (SIFs), REITs and InvITs.

Gold ETF AUM has reached nearly Rs 1.9 lakh crore. This equals around 47 per cent of the Rs 4 lakh crore managed by large-cap equity funds. The firm considers this allocation excessive and advises investors to exercise caution.

Shami urged investors to review their portfolios and moderate return expectations. He maintained a positive long-term outlook for gold but questioned expectations of simultaneous increases in gold prices, inflation and interest rates.

The report warned that attractive fixed-income yields could divert investors from gold. Higher demand for short- and medium-duration debt instruments could offset central bank purchases and limit further gains in global gold prices.

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