Gold investors urged to look for quality blue-chip companies

Investors should pull out of gold and put their money into fast-growing equity markets such as Brazil, Russia, India and China, a leading private bank will tell investors in Leeds on Wednesday.

Schroders Private Banking, which is holding its annual Yorkshire dinner for high net worth individuals, leading law firms and accountants on Wednesday evening, will also advise which FTSE 100 companies to invest in and which to steer clear of.

Rupert Robinson, chief executive of Schroders Private Banking, said that at a time of worldwide zero interest rates, investors are searching for higher yields than savings can offer.

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“Rates are pinned to the floor for the foreseeable future,” he said.

“We are advising clients to look at good quality blue chip UK and foreign companies. You can build a quality portfolio of UK companies which offer a 4.5 to five per cent gross dividend yield.”

Schroders is backing consumer staples, with BAT, Unilever and Tesco singled out as high-quality companies that have consistently generated good cashflow.

Asked whether clients would be wise to back Tesco following its recent profits warning, Mr Robinson said: “We always take a long- term view, over five years. We’re less concerned about short-term volatility in price. We want sound businesses with a progressive dividend policy.”

In financials, Schroders is steering clear of high street banks as they don’t have progressive dividend policies, although it is backing HSBC and Standard Chartered as they both operate in the developing world.

“In financials we are looking at companies such as interdealer broker ICAP and emerging market investment manager Ashmore where you can find yields north of seven to eight per cent,” said Mr Robinson.

In the pharmaceuticals sector, the bank is backing GlaxoSmithKline and AstraZeneca.

“Yes AstraZeneca has been through the wars, but what we’re looking for is stability and income and lower volatility,” said Mr Robinson.

He is advising clients to steer clear of mining stocks owing to the lack of dividends. Those that want longer-term growth should consider utilities and telecoms. Schroders owns shares in Vodafone, Inmarsat and Centrica.

The bank is steering clear of Government bonds as it doesn’t believe the rate of interest being paid to investors compensates for likely future inflation risks.

Mr Robinson, who advised clients to buy gold in 2008 when the price was $770 per troy ounce, is now advising them to pull out since the price fell back from $1,900 to less than $1,600.

“When we bought gold it was quite unfashionable, but now everyone has jumped aboard the train. Now I think it’s over-owned, it’s behaving like a risk asset. However, it will come again,” he predicted.

When asked what the new gold is likely to be, Mr Robinson pointed to opportunities in developing countries, particularly equities.

In the BRIC (Brazil, Russia, India and China) countries, he is advising clients to invest in commodities in Brazil, manufacturing in China, energy and resources in Russia and IT in India.

He also said Indonesia is worth looking at and the country is now being touted as the “fifth BRIC”.

“You’ve got to buy when investments are out of fashion and unloved, that’s when valuations look attractive. We could be moving towards an attractive entry point in these countries, either later in 2012 or in early 2013,” he said.

On the question of the euro zone, he believes Greece is on a path to coming out of the euro.

“If that happens, it will probably be next year although it could happen sooner. I don’t think the euro will break up, the European single currency will survive, but there will be casualties. Greece is number one and the others are Portugal and Ireland,” he said.

Turning back to the UK, he believes this quarter could be another difficult one and he is predicting GDP growth of between zero and 0.25 per cent for this year.

He believes the UK should see a pick up in 2013, with predicted GDP growth of one to 1.5 per cent in 2013.

Referring to the recent swing to the left in France, Mr Robinson believes that new President Francois Hollande is less of a risk than many people think.

“I don’t think he will bite off the hand that feeds him. I don’t think the French/German axis will break down. M. Hollande is a lot smarter than people give him credit for.

“Europe is moving more socialist as a response to the austerity measures. Austerity is not a good diet, but it’s a necessary one,” he added.