Ticker $GDE is WisdomTree’s latest efficient core ETF offering greater than 100% portfolio exposure between two different asset classes (gold plus equity). Specifically $GDE is comprised of 90% US large-cap equity securities and 90% gold futures contracts leveraged for an effective coverage of 180%.
What is so exciting about the latest addition to the roster of efficient core WisdomTree products is that it is the first to break the link between stocks/bonds 90/60 combinations while instead offering an enticing stock and gold duo of 90/90. The best of the S&P 500 and gold? For investors looking to beef up their alternative asset class exposure to gold without having to shave down equities this may be a fund on your radar.
I’ve done a number of back-tests related to leveraged stock/bond/gold combinations with impressive results throughout the decades. However, this was my first time to backtest for merely a stock/gold only combination. I had no ideas what the results would be like (teaser: they’re pretty darn impressive). But for the time being let’s get into the nitty gritty details of the fund.
WisdomTree Efficient Gold Plus Equity Fund | GDE ETF Review
Hey guys! Here is the part where I mention I’m a freakin’ travel blogger! This ETF review is entirely for entertainment purposes only. Do your own due diligence and research while consulting with a financial advisor before considering securities mentioned on this site. Seriously, I’m a travel blogger not a financial professional, so take what I say with a grain of salt; okay? Cheers! 😉
$GDE ETF OVERVIEW
The first thing you’ll notice from the above fund overview is just how brand spanking new it is! Launched on March 17, 2022 it is newly minted and just getting started from an AUM standpoint. For such an intriguing fund, and puzzle piece in a return enhanced portfolio, my hope is that it attracts assets promptly.
However, a few things really stand out. Firstly, the impressive 0.20% expense ratio firmly puts this fund in a class of its own compared to other leveraged funds in the ETF universe that can however around 30 to 75+ basis points higher. WisdomTree is renowned for keeping its funds low cost and tax efficient. These are huge bonuses as many other leveraged funds do exactly the opposite.
WHY GOLD PLUS EQUITY IN ONE FUND?
With 60/40 equities/bonds being the orthodox milquetoast portfolio of the day why would any investor deviate to a 90/90 stock/gold combo? Well, we’re about to find out: (bring on the return stacking back-tests!)
Here are the results of a simulated backtest of 90% US Large Cap Equities and 90% Gold from the 21st century from 2000 to 2022. Anything stand out to you? How about the insane 14.71% CAGR and relatively stable 20.25% Stdev. What’s more impressive is that the dynamic duo outperformed the S&P 500 in the years 2001, 2002 and 2008 when times were rough.
Hands up for those who knew that gold has outperformed the S&P since 2000 until 2022? Yeah, I don’t see too many from over here 😉 With a CAGR of 8.54% and low market correlation of 0.05 it proves to be a worthy ally. Basically, the hypothetical fund given its twin engines approach has always been there to prompt up the struggling co-pilot and vice versa.
For instance, when the US large cap equities struggled in the 70s and 2000s gold picked up the tab. Conversely, the S&P 500 would have been a better bet in the 80s, 90s and 2010s. Who knows what the future holds but at least over the past 50 years they’ve been reliable partners when one is struggling over the other.
1972 to 2022 Backtest: US Large Cap and Gold
This is where I’m sold on the perpetual Batman and Robin relationship between US large cap stocks and gold. From 1972 until 2022 the dynamic duo has only both been down together annually on 4 occasions! 1981. 1990. 2000. 2018. That’s it. Either one engine in the black or two every other year.
Let’s compare the US large cap 2 of the worst years vs the hypothetical 90/90 stock/gold fund. The toughest years would have corresponded to the S&P also getting pounded. 1981 and 2008. Overall the 90/90 stock/bond superduo only had 9 negative years of which 4 were single digit, 3 in the low teens and two super ouch -30+.
Keep in mind this fund would be frustrating from a tracking error perspective on certain years even when numbers are net positive. For instance, take 2013 when US stocks delivered a mighty 32.18% while gold dragged things down by -28.33%.
How Does This Fund Potentially Fit Into A Portfolio?
I think it is fair to suggest the 90/90 stock/gold $GDE ETF is not meant to be a total portfolio solution. That is unless you’re an investor that is 100% S&P long only and feel okay with home country bias. In that case this fund along with $NTSX 90/60 stocks/bonds would provide a worthy bond and gold allocation to your portfolio assuming you’re willing to trim you equities by 10%.
What is a more likely scenario is that investors may be attracted to this fund as one of many efficient core building blocks to build a portfolio of globally diversified equities, bonds and alternatives (such as gold). If that is the case sticking within the WisdomTree family of efficient core products provides for some stellar combinations. One to consider may be as follows:
30% $GDE (90 US Equities / 90 Gold)
30% $NTSX (90 US Equities / 60 Bonds)
20% $NTSI (90 INT DEV Equities / 60 Bonds)
20% $NTSE (90 EM Equities / 60 Bonds)
This 4 fund portfolio would be easy to manage and offers globally diversified equities while offering substantial allocations to both bonds and gold. The overall coverage would be as follows:
US Equities = 54%
INT DEV Equities = 18%
EM Equities = 18%
US Bonds = 42%
Gold = 27%
For a portfolio that isn’t pursuing total capital efficiency or leverage strategies another option would be for this fund to swap out your S&P core holding. Both $GDE and $NTSX offer attractive solutions for investors hoping to add gold and/or bonds in that scenario.
GDE ETF Pros and Cons
- Impressive double digit CAGR throughout every decade I back-tested. In fact, no lost decades and particularly good performance in 70s and 2000s when US equities struggled
- 90/90 exposure is definitely an alpha strategy that should add overall returns to the portfolio in a significant manner
- Tax Efficient and Low Cost
- Brings an alternative asset class (gold) into 60/40 portfolios that are lacking alternatives
- Is a great diversifier for return stacking portfolios that are already heavy in bonds
- Leverage in a portfolio does bring about associated risks that need to be carefully considered by investors. Investors prone to loss aversion and recency bias should stay far away
- Tracking error during certain years where one asset (either stocks or gold) is performing well when the other isn’t. Especially the case when the S&P is strong and gold is potentially dragging it down
- The potential for the two asset classes to be down significantly in the same year. Although unlikely it is possible
GDE ETF FINAL THOUGHTS (GOLD PLUS EQUITY)
I feel like $GDE compared to $NTSX has flown under the radar a bit since initially hitting the market. To me that’s a shame and it is a reflection that most investors still don’t see the value in carving out an alternative sleeve into the portfolio to add further diversification.
I’ll admit here that I’m long $GDE for its gold plus equity and it is one of my favourite new funds in the ETF marketplace. I have to give WisdomTree a lot of credit for embracing the efficient core strategies and sensible use of leverage concept more than other providers out there.
My hope would be that this fund thrives and attracts an AUM that keeps it robust and viable for years to come. All hail gold plus equity!
Past performance doesn’t predict future performance. Results can vary greatly. Leverage brings about certain risks that investors need to consider carefully. Also note that for some of the portfolio visualizer back-tests borrowing costs were not factored into the results. Before adding this fund, or any, to your portfolio be sure to do your homework and due diligence. Seek the advice of a financial advisor when in doubt and be caution rather than overconfident at all times. Remember, I’m just a freakin’ travel blogger writing about a subject matter I’m passionate about for entertainment purposes only.