Silver does not justify significant allocation to portfolio despite stellar run in 2024: Capitalmind Financial Services
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According to a Report by Anoop Vijaykumar and Divyansh Agnani from Capitalmind Financial Services Pvt. Ltd., Silver does not warrant a significant allocation to portfolio despite stellar run in the 2024. The report focuses on the unintuitive advantage of uncorrelated assets. According to the study, a 50:50 Gold-Nifty portfolio would have outperformed both Gold and Nifty for over 20 years. The ideal portfolio for maximum returns with the least volatility would be Gold: 62%, Nifty: 35% and Silver: 3%.
Returns garnered by key asset class
Year till date (Jan 1-Oct 21’ 24), Silver has returned over 30%, followed by Gold with 23% compared to 15% for the Nifty. In 24 full years from 2000 to 2023, Silver ended the year ahead in five of them. Gold in seven, and the Nifty closed the year with the highest return in the remaining 12.
The chart below shows the cumulative equity curve of the 50:50 Gold-Nifty Portfolio. The 50:50 strategy cumulative does better than 100% allocation to either asset class over the long term.
Equal allocation between Gold & Nifty outperforms both (Gold & Nifty on standalone basis)
The ideal allocation
Further the report states, the highest return while minimising volatility from 2000 to 2024 would have come from holding a combination of 32% Gold and 68% Nifty. The return recorded from this combination appears to 13.86% (compared to 13.23% for the Nifty). The lowest volatility combination while maximising return would have been a Gold-heavy portfolio with 62% Gold, 35% Nifty and a small 3% Silver allocation. The return recorded with lowest volatility combination is recorded at 13.33%.
Anoop Vijaykumar, Investments & Head of Research, Capitalmind Financial Services said “A portfolio primarily allocated to equities, supplemented by moderate Gold exposure, can offer not only more stable risk-adjusted returns but also potentially higher absolute returns with reduced drawdowns compared to a Nifty/Equities-only allocation strategy. Given its historical performance, Silver only merits a small allocation in constructing a low-volatility portfolio.”
The ideal allocation
Further the report states, the highest return while minimising volatility from 2000 to 2024 would have come from holding a combination of 32% Gold and 68% Nifty. The return recorded from this combination appears to 13.86% (compared to 13.23% for the Nifty). The lowest volatility combination while maximising return would have been a Gold-heavy portfolio with 62% Gold, 35% Nifty and a small 3% Silver allocation. The return recorded with lowest volatility combination is recorded at 13.33%.
Anoop Vijaykumar, Investments & Head of Research, Capitalmind Financial Services said “A portfolio primarily allocated to equities, supplemented by moderate Gold exposure, can offer not only more stable risk-adjusted returns but also potentially higher absolute returns with reduced drawdowns compared to a Nifty/Equities-only allocation strategy. Given its historical performance, Silver only merits a small allocation in constructing a low-volatility portfolio.”
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