Back to top

Image: Bigstock

Fearing Volatility in Gold? Bet on This New ETF WGLD

Read MoreHide Full Article

After flexing its muscle for two years back to back on safe-haven demand, gold has a rocky start to 2021. Gold bullion ETF SPDR Gold Shares (GLD - Free Report) was up 17.6% in 2019 and 24.4% in 2020. So far this year, the bullion ETF has lost 6.8% against 4.7% gains in the S&P 500. The reason for gold’s underperformance has been the strength of the greenback in recent sessions and the vaccine rally that has bolstered the stock market.

This has left some investors confused that if they should be stay invested in gold over the medium term. To resolve such issues, Wilshire Phoenix has launched the Wilshire wShares Enhanced Gold Trust (WGLD - Free Report) on Feb 17. We’ll explain how this gold fund will lessen volatility in the gold investing field.

WGLD in Focus

WGLD tracks the Wilshire Gold Index, which looks to outperform a stand-alone investment in gold and lower its volatility without the use of any futures, leverage, or derivatives. The fund deploys first-to-market technology to rebalance its exposure to physical gold and cash based on a passive, rules-based system that automatically adjusts to market conditions within the gold and US equity markets (the S&P 500). The fund charges 65 bps in fees.

How Does It Fit in a Portfolio?

Gold is an effective hedge against market risks and offers solid diversification to one’s portfolio. The yellow metal acts as a hedge against inflation too. So, it is prudent to have gold in one’s basket. In the past 20 years, the S&P 500 is up about 303% versus about 605% gains in gold. In first decade of 2000s, the S&P 500 lost about 7.9% against 274.7% jump in gold prices.

However, the economic conditions have turned tricky lately as the global economy has been running on ultra-easy monetary policies. There have been mammoth fiscal stimuli too last year to counter the adverse impact of COVID-19. The Biden administration is also planning to launch fat stimulus measures in the United States in the near term (read: Can Gold ETFs Gain in 2021 After Two Positive Years?).

All these measures often disbalance the expected movements in several asset classes. Hence, staying invested in stand-alone gold sometimes pose risks. Despite being a safe-haven asset, volatility in gold prices shouldn’t be overlooked. In the past 20 years, volatility in the S&P 500 is 19.5% versus 17.3% in gold, as quoted on the factsheet of WGLD. In first decade of 2000s, the S&P 500’s volatility was 22% against 18.5% volatility in gold prices. Here is where WGLD comes to your rescue as it adjusts to changing market conditions and lowers volatility.

Any Competition?

There are loads of gold ETFs in the market, but most offer exposure to only physical gold. SPDR Gold Trust (GLD - Free Report) is the largest fund in the space with about $65.34 billion in assets, followed by iShares Gold Trust (IAU - Free Report) which has an asset base of $30.27 billion. GLD and IAU charge 40 bps and 25 bps in fees. Both funds are designed to track the spot price of gold bullion.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

SPDR-GOLD TRUST (GLD) - free report >>

ISHARS-GOLD TR (IAU) - free report >>

WLS-WS ENH GLD (WGLD) - free report >>

Published in