Soros Hedge Fund Slashes Gold Investment | Chief Investment Officer

After famously calling gold 'the ultimate asset bubble,' George Soros, along with other leading investment funds, has sold gold and other metal stocks.

(May 18, 2011) — Billionaire investor George Soros’s $28 billion hedge fund has slashed its stake in a variety of gold investments.

In the face of a weakening in the US dollar in recent years, the billionaire investor and philanthropist had increased his stake in gold, silver and other precious metals. Yet, earlier this month, according to the Wall Street Journal, Soros’s New York-based fund — Soros Fund Management — decreased its holdings of the gold-backed exchanged-traded fund SPDR Gold Trust by 4.7 million shares to 49,400 shares, valued at $6.9 million at March 31.

The news is discouraging to gold investors because Soros has been perceived as a leader in pursuing gold over the past two years, according to Mark Luschini, chief investment strategist at Janney Montgomery Scott, a regional broker-dealer. “Anytime someone of that prominence and success from an investment management standpoint makes such a change in allocation, many investors are likely to follow,” he told aiCIO, adding that for a typical investor, gold is still a smart standalone investment when around 3-5% of a portfolio.

Reiterating the likelihood of herding behavior following Soros’s decision, Matt Zeman, head of trading at Kingsview Financial, told the Wall Street Journal: “I assume he was sitting on a gigantic mountain of profit in that position and the prudent thing to do would’ve been to book some of it. Because he’s leaving, you’re going to see a lot of small speculators jumping ship.”

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Similarly to Soros, who famously called gold “the ultimate asset bubble,” Dean Baker, co-director at the left-leaning Center for Economic and Policy Research in Washington told aiCIO last month: “Gold has had a huge run-up – which suggests a bubble.” Baker has warned about institutional investors over-allocating to gold.

The previous metal, often viewed as a safe-haven during periods of crisis, is being increasingly scrutinized as an investment for pension and endowment funds. Following the recent purchase of nearly $1 billion in physical gold bullion by the University of Texas Investment Management Company (UTIMCO), Baker said: “I would not consider investing in gold. I assume they expect higher inflation, but I don’t understand it. I think it’s silly. In this case, I don’t see why UTIMCO would do this.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

A new BofA Merrill Lynch Survey of Fund Managers for May shows that a net 28% of regional fund managers expect China's economy to weaken in the coming year, up from a net 15% in March.

(May 18, 2011) — Despite the continued strength and confidence in emerging markets, a net 28% of regional fund managers expect China’s economy to weaken in the coming year, up from a net 15% in March, according to a new Bank of America Merrill Lynch May Survey of Fund Managers.

However, this waning confidence in China’s economy – as well as in other important BRIC economies — has not negatively impacted allocations to emerging market equities, which continue to rise. A net 29% of the respondents now have an overweight position in emerging market equities, representing the highest reading in any region and compares with a net zero percent two months earlier.

Beyond emerging markets, the survey shows that an increasing number of fund managers have a pessimistic outlook on corporate profitability and global growth, with a net 10% of fund managers saying the world economy will strengthen in the next 12 months, down from a net 27% in April. The survey states that participants’ lower conviction about global growth and profit is most evident in Europe, reflecting investors’ identification of the eurozone sovereign debt crisis as the largest tail risk globally.

Furthermore, 73% of investors expect the US Federal Reserve to start increasing rates next year compared with a similar proportion who thought in April that it would occur in 2011.

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In terms of asset allocation, the survey demonstrates that fund managers have trimmed their exposure to equities and commodities, while adding to cash and bond holdings slightly. “A triple dip in growth expectations is reshaping investors’ stance on risk,” says Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research, in a statement. “A risk for investors is that pessimism on Europe now looks to be overdone, particularly in light of strong recent GDP data,” adds Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research.

The survey was conducted May 6-12 and included 284 fund managers with a combined $814 billion in assets under management.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742