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OFFON

Louis Lefeuvre

Junior Analyst
When he is not wearing sneakers or holding a racket, Louis Lefeuvre immerses himself in the writings of famous economists. A student at renowned French school ESSEC, Louis has already founded two companies and a media outlet at a very young age. Open-minded, meticulous and driven by a thirst for learning, he puts his editorial talent and his curiosity at the service of Marketscreener.

An ETF with just gold and bonds?

09/29/2021 | 11:28am EST

On equity markets, the outlook is getting more and more uncertain. Catalysts are lacking. Recent gas shortages, hawkish turns from central banks and news from China force investors to find news ways to get returns. When the weather is uncertain, it's better to carry an umbrella.

But the question is how, in the current period, to hedge without going to risk-free assets? Assets that no longer offer any return, or worse, expose us to negative returns for some.

If government bonds are to be avoided because of low rates, gold is not really a better idea in the short term. Its technical setup could take the ounce of gold back to $1680 from the current $1735.

However, not everything about gold is a throwaway. There are some products that deserve a closer look. The Solactive Gold Backed Bond Index is a perfect example. It is designed to provide broad exposure to the U.S. dollar-denominated investment-grade corporate bond sector, while hedging the U.S. dollar currency risk through the implementation of a gold inflation hedge. In other words, the index replicates the performance of a basket of investment-grade corporate bonds with a return stream denominated in gold rather than dollars. Since Solactive began tracking the Gold Backed Bond Index, the annualized total return has been 12.5%

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Source: Solactive

This solves the number one problem for ETFs seeking to track gold. Unlike the SPDR Gold Shares (NYSE:GLD), the iShares Gold Trust (NYSE:IAU) or the GraniteShares Gold Trust (NYSE:BAR), which offer no return to investors, an ETF tracking the Solactive Gold Backed Bond Index could offer a corporate bond return. As it turns out, the Strategy Shares Gold Hedged Bond (GLDB) does just that, tracking the Solactive Gold Backed Bond Index, and thus offering a return of about 2.5% per year while tracking the price of gold.

The price of gold has risen by more than 516% since January 1, 2000, compared to 208% for the S&P 500 (dividend not reinvested). While gold's recent performance has been rather disappointing, one should not forget the cyclicality of this precious metal.

While uncertainty is taking place, inflation increasing at a high rate, and interest rates remaining extremely low (Yield T-Bonds = 1.537), should we not opt for less volatile assets? Those that are less exposed to significant drawdowns?

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Strategy Shares Gold Hedged Bond (GLDB)

Ticker: GLDB Price: $23,645

No Expense Ratio: 0.79%

Distribution Policy: Monthly

Objective: The index seeks to provide 100% exposure to the U.S. dollar-denominated investment grade corporate bond sector (the "bond component"), plus a hedge against gold inflation with a notional value designed (the "Bond Component"), plus a gold inflation hedge with a notional value designed to match the value of the Bond Component, with this notional value reset on a monthly basis (the "Gold Hedge Component").

 

Principal Positions:

SSGH FUND LTD - 6.9% CASH AND CASH EQUIVALENTS - 6.2% ANHEUSER - 3.5% EQUINIX - 3.5% WALT DISN - 3.4% VERIZON C - 3.4% CITIGROUP - 3.4% WELLS FAR - 3.3% JPMORGAN - 3.2% BOEING - 3.0% GOLDMAN S - 3.0%

Although the assets under management of this ETF are extremely low, which leads to an undeniable lack of liquidity, it is worth considering.


ę MarketScreener.com 2021