Outside of speculation, exposure to gold is usually employed to hedge inflation or as a flight to safety. During long bull market cycles where inflation is muted, gold can be a huge drag on portfolio performance.
The Credit Suisse X-Links Gold Shares Covered Call ETN (GLDI | D-44) offers a way to maintain gold exposure while synthetically creating income though options. I prefer to use this ETN as a complement to core gold exposure rather than a full replacement. GLDI can mute the negative returns of gold and produce income in sideways markets, but the buy-write process may limit the upside during rapid gold rallies.
Gold Without Dollars
The hottest trend in equity ETF investing over the past few years has been currency hedging. AdvisorShares, in partnership with Dennis Gartman, manages two ETFs that are long gold and short either the euro or the yen. TheAdvisorShares Gartman Gold/Euro ETF (GEUR | D-28) and the AdvisorShares Gartman Gold/Yen ETF (GYEN | D-26) are both actively managed ways to access gold while limiting the negative impacts of the strong dollar.
These ETFs are actually quite passive in their exposure, but the active wrapper is used to allow for proper execution of the currency futures trades. These ETFs are great enhancers if investors are using gold as a safety trade in a weak equity market where the U.S. dollar rallies.
My core investment philosophy is based on the “all weather” or “permanent portfolio” asset allocation. This requires that, at all times, we maintain exposure to four dominant economic conditions: prosperity, recession, inflation and deflation.
Gold is our core exposure or hedge for inflation. The advent of new and exciting innovations in ETFs allows me to enhance this position with substantially more precision.
ETFs continue to democratize assets classes through access, and enhance them through tilts and structures. Other investors looking to own gold for speculation, hedging or other reasons now have access that may be superior through smart-beta versions.
At the time of this writing, Toroso had positions in GLD, GLDI, GEUR, GYEN, UBG and TNTNX. Toroso is affiliated with Global X Management Company. Toroso is a New York-based investment advisor focused on researching ETFs and other exchange-traded products, and designing asset allocation strategies, using ETFs that seek to perform well in various economic climates while emphasizing future objectives over past correlations. For more information about Toroso, call 646-465-5930, visit www.torosoinv.com or email[email protected]. For a list of relevant disclosures, please click here.