When markets turn sour, investors tend to flock towards 'safe-haven' assets in an attempt to preserve wealth. In the past, gold has been the go-to during these times of instability.
Yet, if the past year has been anything to go by, perhaps healthcare shares included in the S&P/ASX 200 Index (ASX: XJO) are the new 'gold standard'.
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Seeking out healthier returns than the ASX 200
Historically, the eye-catching yellow metal has delivered superior returns throughout periods of high inflation.
According to a recent article from Australian Resources and Investment, the price of gold rose an average of 14% when inflation was above 3%. Similarly, the precious metal achieved returns of almost 25% (on average) during bouts of inflation averaging above 5%.
That would lead investors to believe that gold exposure would be ideal amid the highest annual inflation we have seen in decades.
However, the price of gold per ounce has moved nearly 7% downward compared to a year ago.
Furthermore, the lack of protection extends over to ASX-listed gold mining shares. Even the biggest of the big have suffered tremendously in the last 12 months.
As shown below, the likes of Northern Star Resources Ltd (ASX: NST), Newcrest Mining Ltd (ASX: NCM), and Evolution Mining Ltd (ASX: EVN) have cratered 28.5%, 37.8%, and 55.6%, respectively. Whereas, a handful of ASX 200 healthcare shares have managed to hold up better and, in some cases, outperform.
While the returns might still be negative, the point is the reduced downside. Investments in Cochlear Limited (ASX: COH), ResMed Inc (ASX: RMD), and CSL Limited (ASX: CSL) have resulted in more modest falls of 18.6%, 6.3%, and 2.8%, respectively.
Yesterday, Janus Henderson portfolio manager Andy Acker highlighted some attractive traits of healthcare companies.
With interest rates expected to keep rising and economic growth potentially slowing, the pricing power and non-cyclicality of areas such as pharmaceuticals and managed care could continue to stand out.
Is there still value in gold as a hedge?
Despite the lacklustre performance of gold and gold mining shares, could there still be a case for holding these 'traditionally' inflation-hedged assets?
Firstly, the precious metal may have yielded a negative return in the last year. However, as demonstrated in the chart below, it has still outperformed the ASX 200 index. That alone could be justification that gold still has its protective properties.
For now, investors of gold mining shares will be hoping their luck soon turns. These companies are currently struggling with a double whammy. Simultaneously, gold prices are falling while input costs — such as labour and materials — are increasing.
