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Time to Buy This Unique Hedged ETF? - ETF News And Commentary

Posted
11/6/2013 10:00:00 AM
By: Zacks.com
Referenced Stocks:GLD;SPGH;SPY

The broad markets are riding high on growing confidence in the global economy, robust Q3 earnings growth, and a falling U.S dollar. In fact, this has been a solid earnings season with most companies reporting earnings above expectations.

The world's second largest economy, China, picked up in the third quarter with manufacturing sector growth at its seven-month high. The uptrend in developed economies like the U.S. and Europe and stabilizing emerging economies are leading to growth in the world markets (read: Play a Resurgent Europe with These ETFs ).

Though the U.S. is showing signs of recovery, some recent data such as disappointing job numbers, weak manufacturing growth and fading consumer confidence suggest that the Fed is unlikely to curtail monetary stimulus anytime soon.

Further, the fear of another shutdown and debt ceiling debacle in early 2014 is surfacing, and adding to the Fed's caution (read: 3 Safe ETFs to Buy in the Next Shutdown ).

In such a backdrop, the greenback remained under immense pressure touching an eight-month low against a basket of currencies, while gold is gaining traction, and is now well off of its 2013 lows. This trend is expected to continue in the near future if the Fed does not engage in tapering and slow momentum falters growth in the world's largest economy.

This situation might be interesting for some investors seeking to play the current rising equity markets and falling dollar simultaneously in the basket form. For those investors, there are a few options, most notably ETRACS S&P 500 Gold Hedged Index ETN ( SPGH ) .  

However, the fund remains relatively unknown as it has only amassed $18.9 million in assets and sees light volumes on most days. Given this, it might be worth it to shed some light on this ETN for those who are unfamiliar with the product, but are thinking about jumping in on the space (see: all the Large Cap ETFs here ).

Fundamentals

The ETN follows the S&P 500 Gold Hedged Index, which uses a unique strategy for investing into the space. The note seeks to provide exposure to the U.S. large cap equities through the S&P 500 Total Return Index while simultaneously offering a long position in the near term gold futures contracts to hedge against any fall in the U.S. dollar.

The expense ratio came in at 0.85%, which is high when compared to many other choices in the space. Since the index is rebalanced monthly, the product is suitable for investors who can manage their portfolio on a monthly basis (read: Gold Mining ETFs Rebound: Can It Last? ). 

Based on fundamentals, it appears that the ETN is poised to move higher in the coming months, as both large cap stocks and gold are ready to rise. Further, the upward trend is confirmed when looking at the technical perspective.

Technical Look

The fund recently broke out its near-term range of around $47.00 and is currently trading higher with short-term moving averages above long-term levels. The 9-Day EMA is now comfortably above the longer-term 200-Day EMA, suggesting bullishness for this ETN.

This is further confirmed by the recent upswing in the Parabolic SAR, although this figure should definitely be monitored closely (see more in the Zacks ETF Center ).

Bottom Line

This unloved large cap ETN could be a ticket to investors closing out 2013 given its unique feature and strong macro fundamentals. The product provides a nice combination of rising stock prices and a hedge against currency risks as well.  

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SPDR-GOLD TRUST (GLD): ETF Research Reports

E-TRC SP5 GOLD (SPGH): ETF Research Reports

SPDR-SP 500 TR (SPY): ETF Research Reports

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