sense as for millennia it has been a currency,
a traditional way to store wealth. I think
gold—like stocks, bonds, real estate and other
assets—has investment merits and demerits
and that it should not be completely avoided
simply because it does not fit neatly into traditional buckets,” he said.
TRS has invested in gold indirectly via
mining stocks for many years, but the TRS
Gold Fund, which is a dedicated strategy, was
launched in October 2009, McGuire added.
He said TRS’s Gold Fund uses ETFs
exclusively and uses gold as a portfolio
diversifier. Their last filing showed they held
about $33.5 million in gold—although that
is in addition to silver and precious-metals
equities—out of a $130 billion portfolio, as
of Dec. 31.
Their gold allocation committee meets
monthly to determine the proper allocation for the trust. The committee takes into
account factors that historically have significantly impacted the metal’s price, such as
the level of US real interest rates, the US
dollar, changes in central bank holdings
and demand from Asia—which represents
about half of total global physical demand
for gold—among other factors.
TRS measures the Gold Fund versus a
custom benchmark of 35% gold, 15% silver
and 50% precious metals equities, based off
the Philadelphia Stock Exchange Gold &
Silver Index, which has the longest history.
STRATEGY + TACTICS
Popular Gold Miners-Equity ETFs
GDX VanEck Vectors Gold Miners ETF
6.93% - 15.78%
GDXJ VanEck Vectors Junior Gold Miners ETF
30.37% - 18.45%
SGDM Sprott Gold Miners ETF
RING iShares MSCI Global Gold Miners ETF
SGDJ Sprott Junior Gold Miners ETF 22.58% n/a
GOEX Global X Gold Explorers ETF
41.96% - 15.13%
PSAU PowerShares Global Gold & Precious Metals Portfolio
9.63% - 14.39%
“Given that we can gain alpha by
playing the metals versus stocks and via
stock selection, this has provided us with
less volatility [in comparison with traditional gold equities-only funds] and yet
more potential upside than gold alone can
provide,” McGuire said.
Gold and commodities in general often
hold a small percentage of any portfolio.
General consensus suggests a 5% holding
for commodities overall. McGuire said
TRS’s precious-metals holdings have ranged
between approximately $100 million and
$900 million, but that the Gold Fund has
remained below 1% of total TRS assets.
A spokesman for the State of New
Jersey Common Pension Fund D, which is
one of the largest holders of GLD and IAU
according to 13F filings, said the fund’s
combined gold ETF holdings represent
0.21% of $71 billion it has in total fund assets.
The gold ETFs are held as part of the fund’s
Risk Mitigation portfolio, said Willem O.
Rijksen, director of communications, office
of the state treasurer, New Jersey Department of the Treasury.
Joe Cavatoni, managing director, USA
and ETFs, for the World Gold Council, the
market-development organization for the
gold industry, works with institutions about
using gold in their portfolios. He agreed
that although gold is often thought of as
insurance, it works in all market conditions.
Despite some investors concerns about an
expressed lack of a dividend, Cavatoni
explained how gold offers a return.
Using a traditional basic portfolio of
40% bonds and 60% equities, where 35% is
the Barclays aggregate bond index, 5% is in
short-term Treasuries and equities are globally diversified, over a 10-year period that
portfolio would return 5.1% with volatility
at 10%. With a 5% allocation to gold over
the same period, the portfolio returns 5.3%
and volatility falls to 9.5%.
“For the last 10 years, it was not such a
bad decision to be in [gold],” he said.
For asset owners interested in either
owning gold-backed ETFs or physical gold
itself, there are a few technical cost factors
that differ from traditional stocks or bonds,
Cavatoni and Day said.
Owning physical gold includes vaulting
fees and insurance to ensure the asset is
safeguarded. That’s the case whether it’s
the ETF that does the supply management,
or an asset owner who works with a custodian to hold their metal. Costs vary on the
amount of gold owned, but ETFs can offer a
lower cost of ownership and an easier mechanism to trade gold close to the spot price.
For asset owners who are not running
tax-exempt funds, unlike stocks, gold’s
capital gains are taxed at a collectible rate,
which can be as high as 28% when the asset
is sold, whether it’s a gold-backed ETF or
Geopolitical concerns are supporting some of
gold’s strength. Coming elections in France,
the Netherlands and Italy, where anti-European Union and anti-euro currency politicians have had their strongest showing in
in the face of