WisdomTree launches capital-efficient ETF combining gold and US equities

Mar 22nd, 2022 | By | Category: Alternatives / Multi-Asset

WisdomTree has launched a new actively managed ETF that seeks to provide capital-efficient exposure to a portfolio of gold and US large-cap equities.

Jeremy Schwartz, Global Chief Investment Officer at WisdomTree

Jeremy Schwartz, Global Chief Investment Officer at WisdomTree.

The WisdomTree Efficient Gold Plus Equity Strategy Fund (GDE US) has been listed on Cboe BZX Exchange with an expense ratio of 0.20%.

Investors seeking to diversify their equity exposure will often allocate to gold which has historically acted as a good hedge against financial, geopolitical, and inflationary risks.

However, investors allocating to both equities and gold will typically do so in separate trades, requiring two separate outlays of capital.

Using leverage and a ‘return stacking’ framework that layers gold futures on top of a basket of US large-cap equities, GDE provides these two exposures while enhancing capital efficiency, thereby freeing up capital to invest in other non-core, diversifying investments.

Commenting on the launch, Jeremy Schwartz, Global Chief Investment Officer at WisdomTree, said: “We are anticipating sustained elevated inflation over the next three to five years. With historically low global interest rates and high inflation comes the need for diversification to hedge macro risks. We believe gold exposure is an important strategic diversifier for equity portfolios.

“The challenge for long-term equity bulls, however, has been a lack of desire to reduce core allocations to stocks to fund positions in gold. With GDE, investors can now add gold exposure on top of a traditional core stock allocation.”

Investment approach

For every $100 invested, the ETF will invest $90 in a broad, market-cap-weighted portfolio of US large-cap equities.

The remaining $10 will be invested in income-producing, high-quality, short-term US money market securities that will be posted as collateral on futures contracts for an effective $90 of long gold exposure.

The portfolio, therefore, offers $180 of total exposure to equities and gold futures for every $100 invested, resulting in accounting leverage of 180%. WisdomTree will typically rebalance the ETF if it deviates by more than 5% from its targeted allocation.

The fund is the fifth capital-efficient ETF from WisdomTree.

Three of the other ETFs in the suite, collectively housing $1.1bn in assets, are aimed at providing capital-efficient core portfolio exposures. The WisdomTree US Efficient Core Fund (NTSX US), WisdomTree Emerging Markets Efficient Core Fund (NTSE US), and WisdomTree International Efficient Core Fund (NTSI US) combine US Treasury futures with portfolios of US large-cap, global developed ex-US, and emerging market equities, respectively.

The fourth ETF – the WisdomTree Efficient Gold Plus Gold Miners Strategy Fund (GDMN US) – is a tactical strategy that stacks gold futures on top of a portfolio gold mining equities for capital-efficient gold-directed exposure.

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