Investors seeking to diversify a portfolio have utilized gold as an alternative asset with a low correlation to traditional equity and fixed-income positions. Now, REX Shares has launched two exchange traded funds that allow investors to gain exposure to both equities market and gold.
On Tuesday, the REX Gold Hedged S&P 500 ETF (NYSEArca: GHS) and the REX Gold Hedged FTSE Emerging Markets ETF (NYSEArca: GHE) began trading, according to a press release. GHS has a 0.48% expense ratio and GHE has a 0.65% expense ratio.
The actively managed GHS and GHE will try to outperform the FTSE Emerging Gold Overlay Index and the S&P 500 Dynamic Gold Hedged Index, respectively.
The gold hedged strategy allows investors to access exposure to gold without diminishing their equity allocations, essentially providing investors a two-in-one, gold-and-stock position in a fund wrapper.
“Investors have been increasing their exposure to gold recently,” Greg King, Founder and CEO of REX Shares, said in a press release. “Our new ETFs allow them an unprecedented type of access to the movements in the price of gold without asking them to choose between gold or stocks.”
King, the man behind the new REX Shares provider, is no stranger to the ETF business. King built the first ever exchange traded note while working on the iPath platform at Barclays and was Head of Exchange Traded Products for Credit Suisse. More recently, he was CEO and co-founder of VelocityShares, which was acquired by Janus Capital.
The gold hedging strategy helps investors diversify. For instance, the hard asset helps hedge currency risk in case of a depreciating U.S. dollar, diversifies a portfolio against unpredictable markets and shields a portfolio from potential financial tail events in more riskier developing economies. However, retail investors who want to implement a gold hedge would typically have to allocate a portion of their wealth to gold bullion.
Alternatively, the first gold hedged ETFs help investors tap into a so-called gold overlay strategy, which institutional investors have been using for decades. Specifically, the approach pairs a core investment, like stocks, with a portfolio hedge applied through derivatives, or in this case, gold futures contracts.
“This approach can help investors in achieving true financial goals: Investors maintain their carefully designed asset allocation, while hedging against potential decreases in the purchasing power of the returns those investments earn over time,” according to REX Shares. “In this way, gold hedged investing addresses the ultimate investing objective: to preserve and increase wealth.”
Currently, GHS holds a 86.4% position in the S&P 500 and 13.6% cash. GHE includes 83.1% to the FTSE Emerging Market Index and 16.9% cash. The cash position would be free to be deployed into gold futures.