Russia gains new gold investment vehicle

Russia’s investment manager Kapital Asset Management has launched a new fund to invest in gold.

The fund will be available to retail investors from October 5. The firm plans to attract around RUB100m (€.5m) into the investment vehicle, according to local press reports.

Kapital Gold will have a fund of funds structure, investing primarily in one of the largest global gold ETFs, ETF PowerShares DB Gold Fund, traded on the New York Stock Exchange. It will also invest in cash.

Andrei Gritsenko, general director of Kapital Asset Management, said the firm expects gold prices to continue climbing in the near future, building on the dynamic of the past three years, during which they rose 80%.

In Kapital’s view, the new fund will be particularly interesting for investors that want to diversify their portfolios from traditional assets, such as equities, bonds and bank deposits.

The fund will allow allocators to reduce the risk profile of their portfolios, since the countercyclical nature of gold can protect from unstable market conditions and uncertain inflation expectations.

As such, the fund will be particularly attractive for long-term oriented investors, such as pension funds, the firm thinks.

In Russia, non-governmental pension funds cannot invest assets directly into precious metals or into foreign index funds, so they need a local fund partner to gain exposure to this asset class.

The Russian market already offers vehicles for investing in gold. For example, VTB issues bonds with yields connected to prices of base assets, such as gold. Yet a fund vehicle has the advantage of eliminating liquidity risk.

A possible disadvantage of the new gold fund may be the double fee – one to the manager of the fund, and one to the ETF provider.

Yet Kapital assures that its management fees are some of the lowest on the market, and ETF’s charges are traditionally lower than the cost of investing in funds. Thus, Kapital charges a 1.5% management fee, while the ETF investment fee is significantly lower than 1%.

Combined with the lower volatility of this investment option, the new fund may well be worth considering for Russian investors looking to gain exposure to precious metals.

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