A Two-in-One, Gold-Hedged Stock ETF Strategy

Gold has helped stock investors even out the ride in a volatile market environment. Instead of investing in two separate assets, exchange traded fund investors can also diversify their portfolios with a kind of two-in-one gold and equity strategy.

On the recent webcast, Revealed: A Full Gold and Equities Exposure Strategy, Guy Adami, Director at Private Advisor Group, pointed out that gold prices have gathered momentum this year after strengthening fundamentals. For instance, loose monetary policies from central banks has supported hard assets, like gold, as a better store of wealth. Volatile market action on geopolitical risks and uncertain economic growth helped gold attract safe-haven bets. Additionally, on the supply side, Adami pointed to a sharp slowdown in new mine start-ups.

Related: Why Gold ETFs can Keep Surging

Greg King, Founder and CEO of REX Shares, argued that gold has historically performed three roles in an investment portfolio: The commodity has been used to preserve wealth, rising on average 8.2% since 1971 compared to the inflation rate of 4.0%. Gold has acted as short-term safe-haven bets to offset extreme negative stock market shocks. Lastly, the asset provides portfolio diversification through its long-term positive expected returns and low correlation to traditional assets.

In a survey of financial advisors participating on the webcast, 37.9% of respondents pointed to market events that created uncertainty as the most compelling reason to own gold, followed by 36.4% currency devaluation and global central bank activities.


Among those who did not hold gold, the uncertain short-term outlook for the gold market and lack of dividend income or earnings growth were among the major reasons financial advisors have abstained from gold exposure.

Many, though, have added gold as part of their diversified portfolio, and investors may even consider a gold-hedged equity strategy as an alternative option. For instance, the actively managed REX Gold Hedged S&P 500 ETF (NYSEArca: GHS) and the REX Gold Hedged FTSE Emerging Markets ETF (NYSEArca: GHE) allow investors to access exposure to gold without diminishing their equity allocations, essentially providing investors a two-in-one, gold-and-stock position in an ETF wrapper.