Drew B. Wieder, Chief Operations Officer and Chief Compliance Officer at Provident Capital Management, argued that traditional allocations in equities and fixed-income assets can be risky with respect to drawdowns in the current environment after a three-decade bull run in bonds and now a nine-year rally in stocks. Consequently, investors’ portfolios may minimize any benefits of diversification when it is needed most.
These alternative assets provide “diversification in a time when most asset classes are highly correlated,” Wieder said.
On the other hand, alternative assets like precious metals could minimize drawdowns, reduce volatility and potentially generate positive returns in both rising and falling markets, Wieder said. These assets would help zig while traditional assets zag.
Matt Collins, Director and Head U.S. Product Operations of Capital Markets at ETF Securities, pointed to a number of physically backed precious metals-related ETFs that investors can look at to diversify a traditional stock and portfolio, including ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), ETFS Physical Silver Shares (NYSEArca: SIVR), ETFS Physical Platinum Shares (NYSEArca: PPLT) and ETFS Physical Palladium Shares (NYSEArca: PALL). ETF investors can also use the ETFS Physical Precious Metals Basket Shares (NYSEArca: GLTR) as a catch-all of all four precious metals.
“Exposure to a precious metals basket may offer diversification benefits across a full economic cycle,” Collins said. “Each precious metal has diverse sources of demand that occur at different stages of an economic cycle.”
For example, gold, silver, platinum palladium all enjoy consumer cyclical demand. Additionally, silver, platinum and palladium experience industrial demand from a variety of industries.
Financial advisors who are interested in learning more about hedging strategies for potential volatility ahead can watch the webcast here on demand.