Investors tipped to turn to gold-backed fund as equities returns plunge

Investors at the Nairobi Securities Exchange (NSE) have been tipped to turn to the gold-backed exchange traded fund to hedge against lower returns from equities and fixed income securities in their asset portfolios.

NSE chief executive Geoffrey Odundo said the metal is a good option especially for long-term investors such as pension funds, insurance funds and company schemes because it retains value, thus ironing out portfolio dips during market shocks.

Gold in the NSE is traded under the Absa NewGold exchange traded fund (ETF), whose price is derived from the international price of gold.

Last week, the ETF hit an all-time high of Sh2,100, in line with the rise in the price of gold to its highest ever level of $2,072 an ounce.

“This is a good option. As companies report decline in revenues, this asset class would act as an insurance and protect strategic investors on the downside,” Mr Odundo said in a webinar meeting held by Absa Bank Kenya Tuesday.

The metal is considered a safe haven investment at a time of economic shock, uncertainty in stock markets and depreciation of the dollar.

“Gold is as a non-yielding asset and the value will increase due to the underlying poor performance of the stock markets,” said Nahashon Mungai, the executive director of global markets at Standard Investment Bank.

The uptake of the ETF in the market has however been slow even during Covid-19 period despite increased demand globally for gold.

It is, however, outperforming other investment options at the bourse, which has been going through a prolonged period of falling share prices.

Investors at NSE have seen their wealth — measured through market capitalisation— fall by Sh550.83 billion since the start of the year.