Economic conditions and technological advancements have made gold, other precious metals, and gold Exchange Traded Funds, increasingly popular. Historically, Gold ETFs first became popular in Australia in 2003 with the inception of the Gold Bullion Security. It quickly saw early gains and developed long-term consistency. Since that time various Gold ETFs have been launched in multiple international markets around the globe. In the United States alone there are currently have 31 active gold ETFs, which tender a total AUM of around $62.78 billion.
For all intents and purposes, a Gold ETF essentially acts like a hybrid of individual stocks and mutual funds. This means that they can serve as funds for an entire portfolio of assets, just like mutual funds, yet Gold ETFs are traded on stock exchanges as if they were individual stocks. This effectively makes them easy to buy and sell for individual investors, organizations, and investment firms.
Just like mutual funds, Gold ETFs can provide instant diversification within your portfolio. However, they differ in that instead of holding stocks, shares or other securities, a Gold ETFs actually holds a tangible and physical asset!
A Gold ETF is very similar to owning physical gold without the security and insurance concerns. They are designed to mirror gold’s price-per-ounce. This means that a share of a gold ETF will hold a direct relationship to the globally recognized price of gold at any given point in time. Savvy investors interested in diversifying or rebalancing their portfolio often consider Gold and other precious metal ETFs as tracking factors. This helps them improve their returns and potentially position their own portfolio for maximized success.
This sort of market volatility means that it may be a wise idea to incorporate some smart beta or factor-based investment strategies designed to implement academically proven strategies in an efficient gold ETF. This might encompass several different factors that have been historically linked to the size, value, quality, trend, and risk volatility. Amongst these, roughly 60% of advisors tend to think of smart beta as fitting best with the domestic United States based equities. This strategy includes using smart betas to provide alpha, as well as improve diversification, and manage volatility, while also providing exposure to specific strategies or value propositions.
Developing A Mult-Factor Strategy For Rebalancing Or Diversifying Your Portfolio
When you take the time to look at the overarching picture, there is no one single factor approach without its own short-term or long-term limitations. Financial advisors, fund managers, and some high-profile smart investors have argued that single factors have been far too cyclical from one year to the next. Yet many smart investors also attempt to combine different multi-factor strategies intended to produce a more diversified solution for rebalancing their portfolio. This time of strategy can potentially enhance long-term returns. At the same time, most of these factored returns are generally not directly correlated, which means they are not necessarily wise for diversifying a portfolio.
Take, for example, the momentum factor which was generally seen as the best performing single factor in the year 2017. This is in stark contrast to the fact that it was also the worst performing single factor in 2016. These two trends alone certainly muddy the waters and make it hard to project single factor as a viable bellwether.
One intuitive and potentially effective method to diversify and potentially enhance returns is to combine various proven and relatable factors. This notably includes things like value, growth, and technical factors as well as sentiment. When assessing these diversification strategies, the value factor needs to incorporate screens such as the LT debt to equity ratio, the price to book value, the potential return on equity, and price to sales ratio as well as things like free cash flow.
The technical factors also need to look closely at things like the cover price trend, the price trend rate of change, and the relative strength versus the market as well as the volume trend. Keeping these things in mind is critical for all aspects of developing a multi-factor strategy.When it comes to evaluating growth factors you need to assess critical factors such as the earnings growth, the earnings surprise, the earnings trend, and the projected P:E ratio as well as the earnings consistency.
With the sentiment factor, effective screens need to include things such as the earnings estimate trend, the short interest, the insider activity, and analyst ratings as well as the industry’s relative strength.
Take The Time To Seek Out The Right Guidance
For the average investor developing a multi-factor strategy can be daunting. There are no cookie cutter approaches or boxed software that can quickly lead you through these waters, and their often arcane terminology. To truly make the most out of your investment strategy and maximize returns on your diversified and rebalanced portfolio, it’s wise to seek out professional guidance.
Being able to accurately incorporate these factors, and combine them with speculative trends can be a very sound way to secure your investment value in the here-and-now, as well as in the long-term.