The heightened volatility in US equity markets due to swings in oil price and global growth concerns have many investors leaning on gold as a hedge against market turmoil and a store for value.
Traditionally, the yellow metal has shown low correlation to both stocks and fixed-income securities, and has enjoyed great demand as a safe haven both during uncertain times and periods of high inflation.
That probably explains why the newcomer REX Shares recently launched the first-of-its-kind exchange-traded funds: REX Gold Hedged S&P 500 ETF (GHS) and REX Gold Hedged FTSE Emerging Markets ETF (GHE). Rex Shares is promoted by Greg King, an ETF industry veteran who rolled out the first ever exchange-traded note while working at Barclays and was head of exchange-traded products in Credit Suisse.
King was also the co-founder and CEO of ETF provider VelocityShares, which was recently acquired by Janus Capital.
Both the funds allow investors to hedge against volatility by giving exposure to the yellow metal without reducing equity allocations.
The actively managed GHS tracks the performance of the S&P 500 Dynamic Gold Hedged Index and seeks to replicate the return on the S&P 500 index along with a long position in gold futures contracts.
The notional value of the futures contracts are kept comparable to the fund’s exposure to the S&P 500. As of writing, GHS had 81 percent of funds allocated to the Vanguard S&P 500 ETF with the remaining 19 percent allocated to cash.
The fund aims to outperform a US large-cap portfolio over the mid– and longer term if the price of gold appreciated and acts as a partial inflation hedge while protecting against the risks of a weakening US dollar.
GHE, on the other hand, tracks the performance of the FTSE Emerging Gold Overlay Index and invests in a portfolio that replicates the performance of the FTSE Emerging Index, along with long positions in gold futures contracts whose notional value is comparable to fund’s exposure to the underlying index.
The fund allocated more than 80 percent assets to the Vanguard Emerging Market ETF while cash constituted the remaining 20 percent.
Due higher global volatility, gold jumped 15.4 percent in the first quarter, the highest in 30 years. Volatile emerging market currencies can seriously dent returns, particularly when investor demand for safe-haven assets grows; gold can be a suitable hedge in such situations.
GHS charges 0.53 percent annually while GHE costs 0.79 percent per annum.
Disclosure: No holdings