RSS Feed
Twitter
08:16
Unknown
“The common question that gets asked in business is, ‘why?’
That’s a
good question, but an equally valid question is, ‘why not?’”
Jeff Bezos
Often times when discussing an investment, the focus of most on-air
and in writings is to analyze a trade idea from the perspective of how
it can behave on its own, rather than in the context of an overall
portfolio. As I continue to travel the country presenting to Chartered Financial Analyst (CFA) and Market Technicians Association (MTA) chapters, I can tell you unequivocally that what matters if not the merit of a single investment play, but how it relates to other asset classes.
This is often not fully captured by people who manage their own portfolios, or use financial advisers. The interaction of investments to each other can matter more than how an individual investment behaves in isolation. This applies to strategies as well. Buy and hold investing in U.S. stocks may be the only thing people care about now, but the reality is that when paired up against other asset classes and strategies, an overall portfolio might produce better risk-adjusted returns beyond the small sample of time we all live in. In other words, diversification still matters.
Why am I bringing all this up? Because there are few areas of the investible landscape which are noncorrelated. Some strategies can help mitigate correlation in an era when everyone wants correlation. Our alternative inflation rotation and equity beta rotation strategies used in our mutual funds and separate accounts attempt to do this through aggressively defensive positioning with an active tactical approach which is primarily based on leading indicators of volatility. But what about from an asset class perspective?
It turns out gold US:GCJ5 fits the bill.
We all know about the role of gold historically as a form of currency and medium of exchange. I am not looking at gold from that perspective, but rather from one that answers the question practically of why gold matters. Put simply, gold matters because it historically doesn't really correlate to macro variables and the stock market, something which I'm writing about for a new white paper to come.
Take a look below at the rolling 24-Month correlation of the SPDR Gold Trust GLD, -0.24% to the SPDR S&P 500 ETF Trust SPY, +0.49% Note that going back to 1968, gold's correlation changes to stocks, and for the most part has no real consistent relationship to equities.
An exciting year lies ahead, and for risk management, a “golden era” may soon come.
This writing is for informational purposes only and doesn't constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.
