HSBC Global Asset Management’s Absolute Return fund favors stocks including Coca-Cola Co. to beat returns from gold this year as the global economy recovers, according to head Charles Morris.
“In the medium term, we remain cautious on gold until it demonstrates strength against equities, which also pay dividends,” Morris said in an interview. The $2.5 billion fund, which returned 11.7 percent last year, halved gold holdings from 12 percent in the fourth quarter, Morris said by phone from London, confirming a November statement from the fund.
The world economy will expand at a 3.3 percent rate this year from 3.9 percent in 2010, the World Bank said last week. Goldman Sachs Group Inc., Wall Street’s most profitable investment bank, said this month that the Standard & Poor’s 500 Index will rally 18 percent to 1,500 by the end of December. Gold has advanced for 10 years and reached a record last month.
Procter & Gamble Co., the consumer-products company, was also among “high-quality” shares that may return more than gold in 2011, Morris said on Jan. 17. Stocks with high returns on capital, are cash-generative and have strong balance sheets now represent 21 percent of holdings, he said.
Spot gold, which peaked at $1,431.25 an ounce on Dec. 7, surged 30 percent last year as the European sovereign-debt crisis boosted demand, while the U.S. central bank maintained low interest rates and bought back government bonds. The metal traded at $1,373.38 an ounce at 6:54 p.m. in Singapore, down 3.3 percent this year.
The fund’s decision to reduce gold holdings by half was detailed in a Nov. 19 update on its website. “We remain bullish over the long term but acknowledge that gold has run ahead of itself,” that statement said.
“We are in favor of high-quality equities, such as the global brands including Coca-Cola,” Morris said. The largest soft-drink maker climbed 15 percent last year, while Procter & Gamble gained 6.1 percent. Both stocks are members of the S&P 500, which rose 13 percent in 2010.
The rally in gold is not yet over, making bullion a long-term holding, said Morris. “We are keen to retain a modest holding” whilst the global financial system remains vulnerable to shocks, he said.
Assets in 10 gold-backed, exchange-traded products dropped 0.4 metric tons to about 2,077.4 tons as of yesterday, the lowest level since Sept. 13, according to data compiled by Bloomberg. Holdings peaked at 2,114.6 tons on Dec. 20.