GDMN: The Effective Alternative | Nasdaq

By Jeremy Schwartz, CFA
Global Chief Investment Officer
Follow Jérémy Schwartz @JeremyDSchwartz

With historically low global interest rates but high inflation, investors are looking for portfolio diversification to hedge macroeconomic risks.

Today, WisdomTree launched the WisdomTree Efficient Gold Plus Gold Miners Strategy Fund (GDMN) as a key addition to our family of Efficient ETFs. GDMN is a unique strategy that mixes gold futures and gold miner stocks to seek to extract the best traits from both asset classes to help investors diversify and hedge macroeconomic risks. .

The Case for Global Gold Exposure

Investors often allocate to gold during cycles of turmoil as a tactical move to hedge against financial, geopolitical or inflation risks.

Over the worst 20 quarters of the S&P 500 Index, gold outperformed by an average of 18.2%.1 In the first quarter of 2020, at the start of the COVID-19 pandemic, gold returned + 6.22% compared to -19.6% for the S&P 500 index.2

Gold is not just a defensive asset class. It has performed well over several cycles, especially during times of high economic activity with high inflation. During periods of expansion, gold served as a hedge against inflation, with the appreciation in the price of gold often coinciding with economic growth.

Gold miners have been a disappointing investment over the past two decades, with high volatility and below average returns, but rising gold prices are improving the prospects for profitability for gold miners. It is important to note that gold companies also offer attractive dividend yields against a background of rising rates. The characteristics of gold miners lie between stocks and gold – they have historically been more strongly correlated with stocks than with gold, but their exposure has held back losses relative to stocks and boosted positive performance by. compared to gold.

Asset performance through stock market cycles (2004-2021)

Efficient Access to Full Gold Exposure – The WisdomTree Approach

Historically, there are several ways to gain exposure to gold: physical gold or gold futures and companies that focus on gold mining activities.

Bullish gold investors will often allocate both the physical precious metal and the stocks of miners in separate trades to gain full exposure to the metal. This approach requires two separate capital expenditures.

Recognizing the capital intensity of this approach, WisdomTree launched the WisdomTree Efficient Gold Plus Gold Miners Strategy Fund (GDMN). GDMN is a capital efficient investment strategy that provides exposure to a modified market cap weighted basket of global gold miners with gold futures exposure stacked on top.

This “stacked income” framework aims to provide exposure to two separate allocations, gold and gold miners, in a single trade with better capital efficiency.

Building our strategy is simple. For every $ 100, the Fund seeks to invest approximately $ 90 in the basket of gold miners and $ 90 in gold futures, for $ 180 of total exposure focused on gold.

GDMN – The efficient alternative

The WisdomTree house point of view calls for high inflation levels over the next 3-5 years, and gold is a commodity that could provide valuable inflation hedge. GDMN offers the possibility of improving the overall risk exposure in portfolios with macro and inflation hedges.

Most importantly, GDMN seeks to provide full exposure to gold in an innovative and capital efficient manner. GDMN provides exposure to both gold and gold miners in a single strategy that requires less capital than would be needed to buy gold, and gold stocks or gold miner ETFs , in two separate transactions.

1 Sources: WisdomTree, Bloomberg. In US dollars. Data for the period December 31, 1967 to October 31, 2021, using quarterly data. Gold is represented by the LBMA Gold Price PM Index, and the S&P 500 is represented by the S&P 500 Gross Total Return Index. Past performance does not represent future results. You cannot invest directly in an index.

2 Sources: WisdomTree, Bloomberg. In US dollars. Data for the period December 31, 2020 to March 31, 2021, using quarterly data. Gold is represented by the LBMA Gold Price PM Index, and the S&P 500 is represented by the S&P 500 Gross Total Return Index. Past performance does not represent future results. You cannot invest directly in an index.

Originally posted by WisdomTree on December 16, 2021.

For more news, information and strategies, visit the Model Portfolio channel.


Significant risks associated with this article

Diversification does not eliminate the risk of incurring investment losses.

There are risks associated with investing, including possible loss of capital. The Fund is actively managed and invests in US listed gold futures and global equity securities issued by companies that derive at least 50% of their income from gold mining (“Gold Miners “). The Fund’s use of US-listed gold futures will result in leverage, amplifying gains and losses and making the Fund more volatile than if it had not been subject to leverage. ‘a leverage effect. Additionally, price movements on gold and gold futures can fluctuate rapidly and dramatically, have a historically low correlation with stock and bond market returns. By investing in the equity securities of Gold Miners, the Fund may be sensitive to financial, economic, political or market events that affect the gold mining subsector, including the prices of raw materials and the success of exploration projects. The Fund may invest a significant portion of its assets in securities of companies from a single country or region, including emerging markets, and thus the Fund is more likely to be affected by events and political, economic or regulatory conditions affecting that country. or region, or emerging markets in general. The Fund’s investment strategy will also require it to redeem shares for cash or otherwise include cash in the redemption proceeds, which may cause the Fund to recognize capital gains. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.

Learn more at ETFtrends.com.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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