Best Of 2016: This Year's Most Innovative New ETFs

November 03, 2016

GHSREX Gold Hedged S&P 500 ETF
Gold hedging's popularity has grown as investors seek ways to protect their equity allocations from weakness in the U.S. dollar. However, few gold-hedged equity products have come to market.

Until recently, there was only one: the Etracs S&P 500 Gold Hedged Index ETN (SPGH). That note, which for years struggled to attract significant investor interest, was finally called in August.

GHS hopes to succeed where SPGH failed. The newer fund is an actively managed ETF offering 100% long exposure to U.S. large-caps as well as gold.

It references the same index used by SPGH, the S&P 500 Gold Hedged Index, though as an active fund, GHS is under no obligation to replicate it exactly. This index tracks an equally weighted mix of S&P 500 stocks and near-term gold futures, meaning, should gold and stock prices rise together, GHS' returns will be amplified.

That de facto leverage is no small potatoes: Year-to-date, the gold-hedged version of the S&P 500 has outperformed the vanilla one by almost 29 percentage points (36.4% versus 7.5%).

Interestingly, GHS, unlike its benchmark, can invest in futures contracts across the yield curve, as well as ETFs and ETNs. That could make a difference when it comes time to "roll" contracts (that is, selling expiring contracts and purchasing new ones.) In fact, GHS' managers say they may try to maximize roll yield and minimize costs by buying whichever contract offers the largest positive (or smallest negative) yield. However, there's no guarantee the managers will follow this strategy.

One final note worth keeping in mind: To access the gold markets, GHS uses a Cayman Islands subsidiary, which circumvents the need for the special structure typically associated with exchange-traded gold exposure, but adds its own brand of risk.



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