In August 2024, the price of gold eclipsed $2,500, a new record high.¹ It’s amazing to consider this metal has been culturally significant in financial transactions for thousands of years.

In figure 1, we look back to 2000 and note the percentage change in gold prices. The year-to-date 2024 figure of 19%—which led to the record high—is not an extreme outlier. There are many different reasons that investors allocate to gold.²

• We continue to hear about excessive government spending and the debt burden—and this year’s election does not portend a direction change. Gold is viewed as a way to hedge against a weaker fiat currency.
• There are examples of countries, like India, where citizens appreciate holding physical gold, typically in the form of jewelry.

It's difficult to know the “right” price level for gold at a given time, though it is interesting that in the 24 years from 2000 to 2023, five exhibited negative returns, and only two out of those exhibited negative returns in the double-digit percentages.

Figure 1: Calendar Year Returns for Gold (2000 to 2024 YTD)

Efficient Gold Plus Equity Strategy

The typical way to build a portfolio is to think in terms of allocating 100% of a pie chart. A 60/40 portfolio tends to mean 60% in equities, 40% in fixed income. Some slice in a certain percentage to commodities or to gold.

There is no right or wrong allocation. But there are some ways to make portfolios go further than the typical limits of a 100% allocation.

WisdomTree developed a range of strategies based on the concept of stacking assets using prudent and capital-efficient leverage through futures.

Ultimately, there is no reason why, in one exchange-traded fund (ETF), one cannot allocate beyond 100%, thereby getting a greater notional exposure relative to every dollar invested.

Thinking of the WisdomTree Efficient Gold Plus Equity Strategy Fund (GDE) as an example:

• The foundation is exposure to the 500 largest U.S. equities by market capitalization, like any equity ETF. In this case, exposure to these stocks represents 90% of the total exposure.
• There is an overlay, such that there is an equal—an additional 90%—exposure to gold futures contracts. The equity exposure and the gold futures exposure, equal in magnitude, now combine such that the total exposure is 180% of the nominal investment.
• To serve as collateral for the gold futures, 10% of the allocation is in U.S. Treasury bills.

If an investor placed $100 into GDE, their return experience would be based on $180 of notional exposure, with 50% driven by large-cap U.S. equities and 50% driven by gold futures.

• These are long exposures, meaning that the investor benefits if the gold futures and the equities exhibit positive returns and the investor loses money if they exhibit negative returns.
• This is a leveraged exposure. Leverage can increase portfolio volatility. An important part of the return experience, however, will be based on how the U.S. equities and the gold futures are moving relative to each other.

Morningstar U.S. Fund Large Blend Category

GDE is in the Morningstar U.S. Fund Large Blend category, so we started by posing the question—what are the three largest ETFs in this category by assets under management?

• SPDR S&P 500 ETF Trust (SPY): This strategy is designed to track, after fees and expenses, the total return performance of the S&P 500 Index.
• iShares Core S&P 500 ETF (IVV): This strategy is designed to track, after fees and expenses, the total return performance of the S&P 500 Index.

One might say—why include two funds that track the same underlying index? On August 22, 2024, there was nearly $560 billion in SPY and nearly $514 billion in IVV.³ When we talk about these two funds, we are talking about more than $1 trillion in investor assets, and it is almost evenly split between them. It’s clear that each is providing a use-case for investors.

We also wanted to recognize that the performance of gold is central to this discussion, in that we previously noted the key drivers of GDE's returns. The largest ETF option for investors seeking exposure to gold is the SPDR Gold Shares (GLD).

We wanted to explore how the performance of GDE compared to the performance of these four large and widely followed ETFs.

Figure 2: Standardized Returns

The Path Dependency of Returns

When considering the returns of GDE, one must hold in mind:

• The returns of the top 500 U.S. equities weighted by market cap.
• The returns of gold futures contracts.
• The returns of U.S. Treasury bills.
• The correlation of returns of these three distinct asset classes against each other over the period.

We look at GDE's returns against SPY, IVV, VIG and GLD over three distinct periods:

• 2022: GDE's inception was March 17, 2022, so we look at the available history during this year even if we cannot include the full year. 2022 was a difficult return year for U.S. equities⁵ and U.S. fixed income.⁶
• 2023
• 2024: Up to August 22, 2024, when we began writing this piece.

Generally speaking, if the price of gold is stable to rising and U.S. equities are doing well, this is a better environment for GDE. If the price of gold is volatile and falling and U.S. equities are trending more in the negative direction, this is a worse environment for GDE.

For the available history of 2022:

• GDE lagged all of the strategies shown. Equities had a tougher time generating returns over this period, and GLD was down slightly.
• The difference in returns between GDE and both IVV and SPY (since they track the same underlying index it is tough to see distinction between the lines in a line chart), was roughly 5% over this period.

Figure 3: 2022’s Available History

2023 saw:

• GLD delivered a return in the vicinity of 15%.

Positive equity returns and gold price appreciation was a pretty good environment for GDE, overall.

Figure 4: 2023—A Year of Large-Cap U.S. Equities and Some Gold Price Appreciation

In 2024 so far, we see:

Figure 5: 2024 Period So Far…

Now, even if IVV, SPY and VIG represent well over $1 trillion on their own, the Morningstar U.S. Fund Large Blend Category has a lot of other strategies within it. In figure 6, we see that GDE was in the first percentile, as of June 30, 2024, which means that over these periods it has generated better returns than 99% of the other funds in this category (over 1,400).

We know that the explanation for these results is the fact that the typical fund in this group would be exposed solely to U.S. equities and would not have a gold futures overlay. Still, Morningstar has placed GDE into this category, and we do believe that many investors allocate to U.S. equities and gold, but they typically do it separately. GDE offers a way to allocate to gold and U.S. equities in the same vehicle and free up capital to invest in other areas. Remember—for every $100 of nominal exposure, the notional investment is exposed to $180 ($90 in U.S. equities and $90 in gold futures).

Figure 6: GDE’s Rank in Morningstar’s U.S. Fund Large Blend Category

Figure 7: Other Important Information

¹ Source: Leslie Hook & Harry Dempsey, “Gold Hits Record Highs as Investors Bet on Rate Cuts,” Financial Times, 8/21/24.

² Source: McCauley et al, “The Russian Sanctions and Dollar Foreign Exchange Reserves,” VOXEU Column, 7/29/24.

³ Source: Morningstar.

⁴ Source: https://www.spglobal.com/spdji/en/indices/dividends-factors/sp-us-dividend-growers-index/#overview

⁵ Refers to the S&P 500 Index.

⁶ Refers to the Bloomberg U.S. Aggregate Index.