A City manager has gone all in on gold as government borrowing has spiralled to “bonkers” levels as a measure against inflation.
Gold is “something to protect yourself against currency devaluation,” said Alec Cutler, director of Orbis Investments, and he expects the problem to get worse in the coming years.
More than six per cent of Cutler’s Orbis Global Balanced Fund is a physical gold ETF, making it the largest holding in the portfolio, while eight per cent of the group’s ‘cautious’ fund is invested in the precious metal.
When I asked why he had gone all in on gold, Cutler had one answer: “Politicians are spending like crazy.”
Inflated spending bills with a reluctance to hike taxes are ballooning government debt, which he argued would lead to greater inflation than expected in the coming years.
“No one’s thinking about 10 years from now or 15 years from now, and the level of debt is just going bonkers,” he added.
“The dollar should be getting whacked, the pound should be getting whacked, the euro should be getting whacked, and that hasn’t happened. What you have seen is gold go up.”
Indeed, gold prices hit a record high last week, reaching over £2,000 per Troy ounce for the first time ever.
The precious metal was aided by the sweeping rate cuts from the People’s Bank of China, along with various European banks over the last week, while global tension in the Middle East pushed investors towards the safe haven asset.
Other investments in Cutler’s portfolio included Asian stocks like Nintendo and Taiwan Semiconductor Manufacturing Company (TSMC), thanks to their cheap price compared to American companies.
He described TSMC as “the most important company in the world that still sells as 17 times earnings, barely a trillion dollar market cap”.
“If Taiwan Semiconductor was ‘US Semiconductor’, can you imagine what the multiple would be? It would be as much as Nvidia.”
Meanwhile, Cutler saw large value in Nintendo’s next console, the Switch 2, along with its wide potential for monetising intellectual profit that he said could “blow away the increase in market value that Disney experienced”.
“Nintendo is where Disney was, 25 years ago, before Disney started monetising everything,” he added.
Private equity and government in UK markets
In addition, Cutler also argued that the government needs to spend less time focusing on private capital and instead sort out the dire state of the UK equity market.
UK equities continue to trade well below US competitors and are frequently being bought out from abroad, with no sign of the problem stopping.
“The government could turn it on a dime tomorrow,” Cutler told City AM “They could say that pension funds have to hold 20 per cent of their assets in UK equities.”
“They’re tinkering around the edges with far sexier things like ‘let’s make the pension funds invest in private equity’. To me, that doesn’t make any sense.”
“Yeah, we’re going to create new companies in the UK, but what about the companies you already have, that are really good, that can’t raise capital?”
“They’ve been around for many, many decades. Why force your pensioners to take the risk on unproven companies when you have proven companies that pension plans used to own?”
Cutler noted that UK pension plans used to represent around 60 per cent of the shareholders in UK equities in 2001, but this has since fallen to two per cent.
This decline has coincided with a dwindling of UK-listed companies, with the junior AIM market seeing the number of listings cut in half over the last 15 years.
To solve the problem, the fund manager also advocated creating a new tax-preferred investment vehicle to push investment in all British stocks, “not some specific slice of the UK that is sexy or popular”.