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.[related_stories]
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.