Inflows into gold ETFs at 5-yr high.: Financial Express

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Net inflows into gold exchange-traded funds (ETFs) for the financial year 2012 were the highest in the last five financial years as muted returns in most other asset classes and an uncertain outlook for the world economy prompted risk-averse investors to flock to the yellow metal.

Net inflows into gold ETFs for FY12 amounted to R3,646 crore, a 59% increase over the R2,289 crore garnered in the previous fiscal, data from industry body Amfi shows.

The figure is 43 times more than the amount collected in FY09, the year the global financial crisis shook world markets. Assets under management (AUM) for the category in FY12 have more than doubled over that in the previous fiscal, and multiplied more than 20 times in the past five years.

“Risk aversion among investors was pretty high for much of last year, which made them turn to gold, which is perceived as a safe haven,” said Nitin Rakesh, CEO, Motilal Oswal Asset Management Company. He added that the bull run in the yellow metal also made the yellow metal attractive: “Investors tend to flock to asset classes that are doing well.”

Gold ETFs as a category gave returns of about 34% for the financial year 2012, according to data compiled by Value Research. Gold prices appreciated as much as 35% in the period, touching R28,040 on the last day of the year.

Currently, a dozen gold ETFs are in operation.

According to Kishore Narne, senior VP and head —currency & commodity—Anand Rathi Securities, the psychological affinity Indians have towards gold made them invest in the commodity despite the sky-high prices.

“Gold has been the best performing asset over the past 10 years. It is a hedge against inflation, which has remained stubbornly high in the past two years,” said Mahendra Jajoo, CIO —fixed income— Pramerica Asset Managers.

Compared to gold, most other asset classes underperformed last year. For instance, industrial metal silver slipped 1%, while Indian equities as measured by the benchmark BSE Sensex slipped by more than 11% during the year. Debt fared better, with average category returns for FY12 clocking a little over 9%. According to market participants, Indian investors have grown more comfortable with investing in gold ETFs over the past two years.

This change in mindset, in turn, encouraged several fund houses to launch gold ETF products over this period. More specifically, inflows into this category last year were boosted by the launch of several gold fund of funds.

“At least 8-9 gold fund of funds were launched last year, which gave a significant boost to the assets under management of gold ETFs,” pointed out Rakesh.

Market participants believe that inflows into gold ETFs are likely to remain robust going forward unless the equity market starts outperforming. According to a recent statement by Thomson Reuters GFMS, one of the world’s leading economics consultancies in precious metals, the more-than-decade-long bull run in gold may come to end in early 2013 if prices touch new highs.