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The objective of this paper is to establish the structural features that gold bullion brings to South African global-balanced portfolios and to establish a strategic weight for this potential asset. We consider two methodological approaches based on a 40-year history to establish a strategic allocation weight for gold bullion. Our first approach considers the strategic role of gold bullion in South African global-balanced portfolios by using a mean-variance efficient frontier framework. We also implement a second assessment methodology that utilises a non-parametric optimisation procedure. We find from our efficient frontier analysis that the primary strategic role of gold bullion in a South African multi-asset portfolio is to add diversification and reduce portfolio risk (rather than enhance return). Whilst our mean-variance results differ slightly from our non-parametric results we ultimately find evidence in support of an allocation of 4% to gold bullion for South African balanced portfolios. This finding is consistent with findings in the international literature.

Regulation 28 of the Pension Funds Act now permits an increased allocation of 25 per cent to foreign investments. The regulation previously only permitted a 20 per cent allocation. Establishing the optimal foreign allocation for South African portfolio managers given the 25 per cent upper bound is an important consideration for strategic portfolio planning. In this paper we consider two methodological approaches to establish a strategic foreign allocation weight. Our first approach considers the strategic role of foreign investment in South African global balanced portfolios by using a mean-variance efficient frontier framework over a long-term period. We also implement a second assessment methodology that utilises a nonparametric procedure. Both the mean-variance and the non-parametric methodology yield compelling evidence for the foreign allocation to be set at the maximum allowable bound of 25 per cent.