‘Have your cake and eat it’ hedged gold ETF launch from Strategy Shares

David Miller Catalyst rectangle 2

ETF group Strategy Shares has just launched the first Gold-Hedged Bond ETF (GLDB), designed to enable investors to generate income from a portfolio of investment grade corporate bonds, while hedging against inflation with a gold overlay.  

David Miller, Strategy Shares Portfolio Manager for GLDB explains that his firm is a subsidiary of Rational Funds with USD1.6 billion under management, which is in itself a sister fund family to Catalyst Funds, which has USD4 billion in assets.  

The funds are in the alternative space and Miller says that his aim is to deliver unique funds that are not replicable in the marketplace. Strategy Shares has USD550 million in assets, and its biggest fund is the Strategy Shares Nasdaq 7HANDL Index ETF (HDNL), a tactical ETF designed to seek investment results that correlate generally, before fees and expenses, to the price and yield performance of the Nasdaq 7HANDL Index.  

The index is split into two components, with a 50 per cent allocation to fixed income and equity ETFs and a 50 per cent allocation to a Dorsey Wright Explore Portfolio, a tactical allocation with US fixed-income, US blend, US equity and US alternative assets, or categories that have historically provided high levels of income.  

Launched in 2018, the fund is designed to deliver a 7 per cent annualised distribution yield and a 7 per cent total return, and has achieved 8.67 per cent annualised over the last three years.  

The second ETF in the Strategy Shares’ portfolio is the Strategy Shares Newfound/ReSolve Robust Momentum ETF (ROMO) which seeks to provide momentum-based exposure to global equity regions while simultaneously avoiding significant and prolonged drawdowns. The firm writes that ROMO, unlike many tactical strategies, which implement a ‘light switch’ approach, it implements a distinct ‘dimmer switch’ approach.  

The index underlying ROMO uses a quantitative, rules-based methodology to provide exposure to broad US equity, international equity, and emerging market equity indices, to the extent that such equity indices are exhibiting positive momentum relative to US Treasury market indices.  

ROMO has USD40 million in assets and, Miller says, “oscillates through bonds and equities depending on the signal”.  

“What we are trying to do is create ETFs that are not just a replica of existing products that are out there,” Miller says. “We want to make sure that we are identifying solutions that a specific investor needs and that often is a specific yield on their money.”  

This is where GLDB comes in. “Obviously there are a lot of gold and bond ETFs out there, but the problem is that if you hold gold, it has done a good job of hanging onto its purchasing power, but it’s just a shiny metal, with no yield, no capital gain and no potential to increase in its size.”  

Miller believes that the same goes for bonds. “If you own a bond, you get a yield which is nice but if you own a bond it will mature in 10 years and the money could be worth 20 to 30 per cent less than today.”  

Miller’s solution is to try and deliver the best of both worlds. “A portfolio of investment grade corporate bonds but hedged to the price of gold which should maintain that value of your purchasing power and get the yield and that is what makes this fund quite unique,” he says. “You are having your cake and eating it.”  

The driver behind the launch was the huge increase in money supply in the US, which Miller fears will spark inflation. “There is a real need to have a product that can defend a bond portfolio against inflation,” he says. “We wanted a vehicle where investors could address that problem.”  

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