The equity markets have been hitting record highs, but many investors are wary of any potential short-term, risk-off events that could trigger a sudden pullback. Consequently, investors may consider an alternative ETF strategy to hedge unseen risks.
Some have looked to gold as a hedge against market volatility, and a instead of taking a position in two separate assets, investors can diversify their portfolios with a kind of two-in-one gold and equity strategy.
As a way to hedge uncertainties in a capital efficient way, investors 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.
“Investors are always looking for ways to diversify their portfolios without sacrificing long-term growth potential. If the outlook on bonds isn’t rosy and stand-alone gold positions are sapping too much allocation, a layered gold strategy could be an ample alternative,” according to REX Shares.
Gold is a good diversifier as a tail hedge, but investing in the asset will make one incur opportunity cost of investing in something else. Gold may help the overall performance of a portfolio if there was a substantial drawdown during a period, but if there wasn’t, the unneeded hedge could end up costing an investor.