Citywire AAA-rated David Coombs has added gold to his multi-asset funds for the first time in seven years.
The manager of the £312.09 million (€352.16 million) Rathbone Multi-Asset Strategic Growth Portfolio had held a cash position of around 15%.
However, the multi-asset manager has this week used around 1.5% of this allocation to make a significant move into the precious metal.
'In each of the funds we are slowly building a position to about 5%. Gold is always a very difficult purchase and, while I have bought it before, it was some years ago,’ Coombs told Citywire Selector.
'We are buying it because the UK is very vulnerable to recession. We bought this before the gilts sold off and we are loathed to buy long-duration gilts or index-linked bonds to help us mitigate economic risk. We feel that gold is a good diversifier for us.'
Coombs first owned gold when the version aimed at UK-based investors was launched in 2009. He increased the position in May and October 2010 before selling it 2011 due to the growing correlation with equities.
Coombs added credit risk was increasing globally and he doubted the US Federal Reserve would raise rates as quickly as the market had anticipated.
'Rising rates usually means quite a bearish environment for gold in the US, but the outlook suggests rates are going to rise at a level which is less than we thought,’ he said.
'We can't buy long-duration bonds, property, or infrastructure. We have some other commodities and we have some S&P puts, but ultimately it is about building a portfolio of assets that correlates risk off.
'Gold is the last shelf in the store for us, so to speak, which is why we are buying it,' he added.
Coombs has made the purchase by using a physical gold ETF, which is hedged in pounds sterling to further increase diversification.
'The reason why we bought it hedged to sterling, rather than buying it in dollars, is that we already have significant US dollar exposure. Therefore we didn't want to build on our existing currency exposures,' Coombs said.
Over three years to the end of August 2017, the Rathbone Multi Asset Strategic Growth fund returned 24.1%. This compares to the average manager return of 11.4% in the absolute return sector.