The Benefits of a Gold Hedge in an Equity ETF Position

Some have turned to gold as a hedge against market volatility, and a instead of taking a position in two separate assets, exchange traded fund investors can also diversify their portfolios with a kind of two-in-one gold and equity strategy.

ETF Trends publisher Tom Lydon spoke with Greg King, Founder & CEO of Rex Shares, at the Inside ETFs conference that ran Jan. 22-25, 2017 to talk about the diversifying effects of gold for a traditional equity portfolio.

“Our view is that if you look at the diversification of gold and the negative correlation right now – sometimes a little positive – but generally, prettily uncorrelated to equities,” King said. “You want to have some gold in there for the long term.”

Investors looking to gold as a way to hedge uncertainties in a capital efficient way may consider something like the actively managed REX Gold Hedged S&P 500 ETF (NYSEArca: GHS). GHS 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.

“So basically, you have one dollar that’s doing the work of two dollars in a portfolio, and what that does is put the disciple around the concept of ‘when do I have gold’ and sort of have a permanent position in gold, but it is done in a capital effective way where you don’t have to take down your equity exposure long-term,” King said.

When investors try to hedge gold on their own, they may have poor timing, often getting in our getting out of the position during the worst periods possible.

“We can be our worst enemy, right, in terms of buying high and selling low,” King said.

However, the gold hedged S&P 500 ETF will take a 100% position in gold futures along with 100% in equities, allowing investors to enjoy the long-term benefits of both gold and stock growth while also gaining exposure to the negative correlation between the two assets to diminish portfolio risk during short-term bouts of volatility.

“In the short-term, you have negative or sometimes a little positive correlation but pretty much zero, but in the long-term basis, you have both asset classes going up,” King said.

For more information on the gold market, visit our gold category.

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