World Gold Council: Investment Update - Gold, an efficient hedge

You are receiving this email as a registered member of Morningstar.com and have asked to receive features, products and services from third party companies. This is a paid advertisement from the sponsor. If you would like to change your e-mail preferences, see the bottom of this message for more information. Also, if you are unable to see the images, please click “Show Images and Enable Links” or right-click to download pictures. Many tail hedges work well during crises if timed appropriately, but are technically complex investments, and can be expensive to hold systematically. [World Gold Council]( Investment Update: Gold, an efficient hedge The benefits of certain portfolio hedges came into clear focus during the 2008-2009 financial crisis and did so again during the subsequent European sovereign debt crisis, the 2018 December stock market pullback and the most recent COVID-19 pandemic. Many tail hedges work well during crises if timed appropriately, but are technically complex investments, and can be expensive to hold systematically. Thus, it is important to consider different metrics for assessing the benefits and drawbacks of each hedge. [Our analysis]( shows that, historically, any of the hedging choices are better than a diversified hypothetical portfolio without hedging, but gold has historically been the overall optimal hedge over the long run when considering the collective portfolio metrics. (Table 1 below). This report examines: - volatility, credit, fixed income, and precious metal hedges - hypothetical portfolio: returns, volatility, risk-adjusted returns and drawdown - the benefits and drawbacks of the hedges - and the application to historical and recent market behaviour. Table 1: Performance of hedging strategies in an average pension fund portfolio over the past 20 years* Ranked (1= most optimal to 9 = least optimal) for each category and overall. *Performance between March 2000 and March 2020. The hypothetical portfolio is based on Willis Towers Watson Global Pension Assets Study 2019 and Global Alternatives Survey 2017 as described in the Appendix footnote 5. Performance is based on blended weights of the hedges ranging from 2.5% to 10% of the portfolio, proportionately reducing the rest of the portfolio by the initial weights. ‘Returns’: average of cumulative and average returns; ‘Volatility’: overall portfolio volatility; ‘Risk-adjusted returns’: average of the return on risk, Sharpe ratio and information ratio; ‘Max drawdown’: the most the portfolio lost during any trough. See the Appendix and footnote 4 for definitions of ‘VIX short-term futures’ ‘CDS IG’, ‘CDS HY’; and ‘TIPS’. Source: Bloomberg, World Gold Council [Download the full report]( Follow us... [Twitter]( [LinkedIn]( [Facebook]( [Gold]( Copyright © 2020 World Gold Council, All rights reserved. Our mailing address is: World Gold Council 15 Fetter LaneLondon, EC4A 1BW United Kingdom Read our [Privacy Notice](. This communication, including any attachment(s), may be privileged and is intended solely for the named addressee(s). If you are not the intended recipient, please notify the author and destroy this communication. World Gold Council, An Association is registered as an overseas company in England & Wales with UK establishment number BR012707. It is formed as a Verein in Switzerland with limited liability of its members and is registered with the Swiss Registre Du Commerce (identification number CH-660.0.534.987-6). WGC (UK) Limited is registered in England and Wales with company number 07867682. About this E-mail to Morningstar.com Customers: To unsubscribe from future e-mail, [click here](. You may be asked to log in first. If you cannot remember your password, retrieve it by [clicking here](. All subscription changes will take effect within one business day. This message was sent by an automatic mail sending program. Do not reply to this e-mail address. Any messages sent to this address will be automatically deleted. If you have questions about Morningstar.com or your membership, send a note to joe@morningstar.com. ABOUT OUR PRIVACY POLICY Please [click here]( to learn about Morningstar's privacy policy. © Copyright 2020. Morningstar, Inc., 22 West Washington Chicago, Illinois, 60602. All rights reserved