• Maheswaran Hariharan

AssetPlus NFO Review: Motilal Oswal Gold and Silver ETFs FOFs

Motilal Oswal AMC has launched an NFO, which is open for subscription from Sept 26th, 2022, and closes on Oct 7th, 2022.


Investment Objective: To generate wealth over the long term, suitable for investors having a high-risk appetite who are comfortable with volatility in the short term.


Investment Strategy: The fund deploys a passive approach by investing in Exchange Traded Funds(ETFs). As the name suggests, the fund aims to invest in units of Gold ETFs and Silver ETFs to capture the market value of the precious metals.


Fund Manager: Abhiroop Mukherjee


Benchmark: LBMA Price of Gold and Silver


Fund Management Process:

  1. The fund follows passive management with the expectation of replicating the growth of Gold and Silver in electronic form over the long term.

  2. The investment universe contains only Gold and Silver at all points in time.

  3. There is higher allocation towards gold as it has higher economic value, is more liquid, and is relatively more stable than silver.

  4. The portfolio is constructed and managed through the following process:

  • Starting allocation of the portfolio is kept at 70% towards gold and 30% towards silver.

  • The maximum allocation amount for gold at any point in time is 90% of the entire portfolio.

  • The portfolio is reviewed every quarter as the market value of commodities keeps changing.

  • There is no active re-balancing process.

Opportunity:


Gold, one of the most precious metals, is an excellent hedge against economic uncertainties, pandemics, and global recession. On the other hand, silver derives value from its vast demand in the modern world for semiconductor manufacturing and facilitates the EV process.


Chart depicting Gold+Silver vs Only Gold and Only Silver. Source: Motilal AMC

Gold is relatively more stable, while Silver tends to react more steeply, both on the upside and downside. As a combined product, the volatility can be significantly reduced.

Gold+Silver vs other Investment avenues during periods of stress. Source: Motilal AMC

During stressful times, equity markets tend to react negatively and take quite a beating. However, in all the above cases, Gold+Silver has outperformed the stock market domestically and internationally.


Based on our analysis, we have observed the following pros and cons:


Pros:

  1. Precious metals have stood the test of time and civilizations as a store of value and exchange.

  2. Perfect for Asset Allocation due to inverse relation with Equity.

  3. No risk of theft, purity, storage, and making charges making it cost-effective and easily accessible.

  4. Essential for diversification and mitigates risk in the portfolio.

  5. Gold is a natural hedge against inflation and is considered a safe haven

  6. Silver has increasing growth potential thanks to its industrial demand and utility.

Cons:

  1. The investment universe is limited to only gold and silver.

  2. There has been relatively lower performance than equity in the last five to seven years.

  3. The dollar’s growing strength as a world standard has weakened the overall prospects of Gold’s growth in the recent past.

  4. Volatility levels can be very high in the short to medium term.

Gold and Silver do not need great introductions as it is most relatable and consumed precious metals since the inception of humankind and civilizations. These commodities have been used for multiple purposes. They have untapped potential as a combination(Gold+Silver), available and easily purchasable as a mutual fund investment product.


It is of utmost importance that the fund is discussed with your financial expert and then ascertain whether it is suitable to invest in. Always read the scheme documents thoroughly before investing.

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