Investors All In on TLT Over GLD
Both ETFs have struggled with performance, as multiyear highs in interest rates weigh on prices.
Demand for the iShares 20+ Year Treasury Bond ETF (TLT) and the SPDR Gold Trust (GLD) have diverged significantly this year, even as investors look toward both funds as potential recession hedges.
Investors added $1.4 billion to TLT this week alone, adding to a whopping $17.2 billion in total inflows year to date, according to data from etf.com. That’s equal to nearly half of the fund’s current assets under management of $38.9 billion.
Conversely, GLD saw outflows of $320 million this week and $2.5 billion in outflows this year.
With economic concerns front and center, both ETFs have struggled as multiyear highs in U.S. interest rates weigh on their prices. TLT lost 7.5% over the past month, while GLD fell by 4.6%.
The difference in investor interest in the two funds could be caused by their exposure to rising rates. For TLT, the long bonds within the ETF’s portfolio fall in price as interest rates rise. This week, as the 30-year Treasury bond yield touched its highest level since 2011, the price of the fund dropped to its lowest level since that year.
Gold has a more indirect relationship with interest rates. On the margin, higher rates increase the opportunity cost of holding gold, making the metal less appealing to investors who use it as a hedge against economic troubles and as a portfolio diversifier.
TLT vs. GLD
But while both funds have been hurt by rising rates, ETF investors haven’t been treating them the same.
They’ve been buying up TLT, while dumping GLD. The reason for that may be because of TLT’s yield advantage.
Both TLT and GLD might be pressured by rising rates, but TLT investors get a nearly-5% yield for their troubles. The same can’t be said for GLD, which offers no yield.
That’s probably why ETF investors are gravitating towards TLT over GLD, even though both funds are widely seen as hedges against a potential economic downturn.
Contact Sumit Roy at [email protected].