New Frontier Analysts Recommend Gold for Diversification

According to a recent research, in a portfolio dominated by the Euro, an investment comprising physical gold can increase diversification. This can in turn help improve the performance of the investment portfolio. New Frontier Advisors, a research firm that analyses investments, stated that including gold in a portfolio can improve the risk-return profile. This is more so in portfolios of European investors. This is based on the research conducted by the firm on several sample portfolios.

Research Looked at Euro Investors

Data collected over 25 years was analyzed by New Frontier Analysis. It employed some of the best statistical techniques to study the data. The information was looked at from the perspective of those who invest predominantly in Euros. When looking at investment portfolios, for the years prior to 1999, the European Currency Unit was considered the substitute for the Euro.

The findings have been included in the report called ‘Gold as a strategic asset for European investors’. The World Gold Council recently published the report. The findings suggest that it is best to add gold than to include it as a stand-in for an investment that is already in the portfolio. When gold is included in portfolios, it has the potential to add a lot of diversity owing to its negative ( or, sometimes low) correlation with other asset classes.

Optimal Gold Investment Options for Investors

The sample portfolios that New Frontier Research analyzed were those of investors in Eurozone. The key objective of doing this was to find out whether portfolios can benefit from adding investments including gold. The report also looked at what percentage of a portfolio should contain gold. This is also called portfolio optimization.

When doing this, the risk tolerance levels of the investors were also taken into account. Based on the risk levels, the optimum allocation for investors in Europe changed. For instance, for investors in the high risk range, the optimum investment percentage for gold was determined to be as much as 10%. For those in the medium risk range, it is between 3.3% and 9.3%. Those in the low risk range can benefit from 2.2% to 5.4% of gold investment.

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