Adviser focus: Haydn Ellwood

“When you are an investment advisor, you have to have conviction in your investment philosophy and strategy. I also invest alongside my clients so that our interests are aligned.”

Haydn Ellwood is the managing director of Yellow Capital, a recently launched wealth management boutique.

Yellow Capital focuses on investment portfolio management and holistic financial planning for private clients with net worth in excess of £1m. Its advisers have a strong belief in gold and their clients will have a small exposure to gold in their portfolio.

Q: Gold is trading at new peaks in excess of $1,325.10 (£834.87) per ounce today, equalling a 20.8% rise so far this year. What were the main drivers behind this movement?

A: There are several reasons for the continued upward increase of the gold price. The most notable ones are that foreign central banks are halting their gold bullion sales.

Although it is not reported to the International Monetary Fund, I believe that central banks and sovereign wealth funds of many countries are buying gold, particularly exchange traded funds ETFs, rather than dollar treasury bills and bonds.

Gold’s seasonal low, which is usually August, is over. Chinese and Indian jewellery consumption has picked up again. In general, investors are fearful of government debt levels, currency default, devaluation or hyper-inflation.

The short-term downward driver is normally caused by speculation of hedge funds and traders who sell to take profits or losses.

Q: How much importance do you place in such short-term movements?

A: In general, I do not place any importance in short-term movements. At best, I would use short-term dips for adding to my position. Short-term noise, as it is known among investors, is caused by traders buying and selling on a daily basis trying to make small gains.

Yellow Capital emphasises a medium- to long-term buy and hold investment strategy and a typical horizon of five to 15 years. (article continues below)

Q: What options do your clients, who wish to invest in gold generally, have?

A: The ultimate form of any gold ownership is, no doubt, physical bullion bars. Those are stored outside of the banking system, the best being the large London Good Delivery bars. For the ordinary investor, marked one ounce bars are an affordable option. Coins, in particular Kruger Rands, are also good.

Mining stocks are extremely volatile and valuing a gold mining company is tricky. However, they provide around 30% leverage to the underlying gold price.

ETFs that are backed by physical gold are good for a more liquid investment or part of a portfolio.

Buying an index that tracks the largest unhedged miners is probably the safer option. Yellow Capital uses traded covered warrants to insure client portfolios against seasonal dips and general volatility.

Q: Is investing in gold suited to a particular client type?

A: No, I would say it is suited to everyone. Most people already own gold in the form of jewellery. 

Q: Which products do you recommend in particular?

A: Each client’s needs and objectives are different. We assess them in a comprehensive financial plan before making any investment decisions.

For wealthier clients, I recommend the purchase and safe storage of London Good Delivery bullion bars and direct equity purchases in mining companies.

One of our original recommendations was Lihir Gold at AUS$2.05 (£1.27), which was recently taken over by Newcrest Mining at around $4.48 per share.

For the all clients, regardless of their wealth, I recommend physical ETFs. For actively managed investments, there are several options in the Investment Management Association specialist sector, my favorite being the CF Ruffer Baker Steel Gold fund.

Q: Over the past decade the gold price has increased five-fold from a low of $258 in 2000. What is your forecast for the next decade?

A: I do not make forecasts. It is important to remember that it is not the value of gold that goes up, it is merely the value of paper money going down in relation to an ounce of gold.

I firmly believe that gold is still undervalued and that the fundamentals for gold are positive, including a decrease in mining stocks, large government deficits and negative real interest rates.

Q: What differentiates Yellow Capital from other firms?

A: We are a specialist investment adviser. Having grown up in South Africa, which has been the biggest producer of gold since 1902, I acquired a solid understanding of gold and mines. Yellow Capital also has excellent links with mining experts in the Australia, Britain and South Africa.

What sets us apart from other investment advisors is that we believe in gold as money and have invested our own and our clients’ money in gold since 2005. Personally I have invested 70% of my net worth in gold.

When you are an investment adviser you have to have conviction in your investment philosophy and strategy. I also invest alongside my clients so that our interests are aligned.

Q: What do you enjoy in your free time?

A: I enjoy spending time with my wife and our baby boy, Michael. I also enjoy going for an occasional light run every so often and watching formula one grand prix. I support McLaren, Lewis Hamilton.