A Risk-Managed Approach to Gold & Bitcoin within one strategy.
A Tactical Approach
for Uncertain Times
Trends with Benefits
The Firm’s Conviction Weighted Momentum technique requires momentum to be both positive and increasing prior to initiating and/or maintaining a position, and as such it seeks to minimize volatility and drawdowns.
Risk-Managed by Design
The Conviction Weighted Momentum approach has a high threshold for investing in gold and a low threshold for going to cash.
Exposure to Gold & Bitcoin When it Makes Sense
We seek to allocate to risk assets only when the anticipated risk-adjusted returns are highest.
Gold has Historically been a Strong Performer...
LBMA Gold (USD/Oz) – The London Bullion Market Association (LBMA) Gold Price is the global price index for unallocated gold delivered in London. S&P 500 Index Total Return is a large-cap U.S. equities which includes 500 leading companies and captures approximately 80% coverage of available market capitalization. Bloomberg Barclays US Aggregate Index Total Return is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.
The RG Aurum+ Strategy consists of securities and holdings that vary significantly from those in the SLBMA Gold Index, the S&P 500 Index and the Bloomberg Barclays US Aggregate Index , each of which is an unmanaged index which has different objectives, compositions and risk profiles than the RG Aurum+ Strategy. Additionally, unmanaged index returns do not reflect any fees, expenses or sales charges, assumes dividends are reinvested, unless otherwise noted, and unlike the RG Aurum+ Strategy do not reflect actual trading. Accordingly, comparing the results shown to that of this index may be of limited use. The referenced indexes are shown for general market comparisons and are not meant to represent comparable benchmarks to the RG Aurum+ Strategy.
...but it's also been a Wild Ride
Source: The Atlas Investor
The above chart represents the price of the iShares Gold Trust in comparison to the maximum drawdown incurred by an investment made as of the highest NAV prior to such applicable date; and is intended to reflect the volatility associated with investment in gold. The iShares Gold Trust (Ticker: IAU) is an actively traded Exchange Traded Fund whose objective seeks to reflect generally the performance of the price of gold. Gold is not the only exposure taken by the RG Aurum+ Strategy and the NAV of the iShares Gold Trust does not perfectly correspond to appreciation or depreciation of the price of gold. As such this chart is subject to limitations in a prospective investor’s evaluation of the RG Aurum+ Strategy.
Gold’s strong performance has not been without multiple drawdowns in excess of 20%.
For investors seeking gold’s historically uncorrelated returns with reduced risk and minimal drawdowns, a passive allocation to gold can be difficult to justify.
A Risk-Managed Approach Can Help.
The above chart represents, for the period between December 2014 and December 2020, and as of any period of time therein, the change of value of the IDX Aurum+ Index in comparison to the change of value of the SPDR Gold Trust (Ticker: GLD); and is intended to show the hypothetical decline from high water mark of the Index relative to the SPDR Gold Shares at any given point during the back tested and/or live trading period. IDX Aurum+ Index is a composite index constructed through an 85% allocation to the IDX Tactical Gold Index (Ticker: IDXGOLDX) and a 15% allocation to the IDX Tactical Bitcoin Index (Ticker: COIN). The IDX Aurum+ Index is an index managed by an affiliate of RG Alts, LP and priced by S&P Down Jones Indices. The IDX Aurum+ Index was launched in September 2020 and any returns before that time are hypothetical and do not include trading fees, transaction costs or management fees. Results after the inception date September 9, 2020 are composite returns and are therefore hypothetical and not subject to transaction costs, trading fees or management fees. The IDX Tactical Bitcoin Index is an index managed by an affiliate of RG Alts, LP and priced by S&P Down Jones Indices. The IDX Tactical Bitcoin Index was launched in August 2020 and any returns before that time are hypothetical and do not include trading fees, transaction costs or management fees. Results after the inception date, August 2020, are composite returns and are therefore hypothetical and not subject to transaction costs, trading fees or management fees. The SPDR Gold Trust is an actively managed exchange traded fund whose investment objective is for its shares to reflect the performance of the price of gold bullion, less the Trust’s expenses. Gold and cryptocurrency is not the only exposure taken by the RG Aurum+ Strategy and the NAV of the SPDR Gold Trust does not perfectly correspond to appreciation or depreciation of the price of gold. As such this chart is subject to limitations in a prospective investor’s evaluation of the RG Aurum+ Strategy and should only be used for general market comparisons.
Investors who believe that the case for an investment in gold is compelling, often mistakenly believe that a passive allocation is their only option. As we head into unprecedented times economically, prudent investors are asking “Is there an alternative to passive allocations of gold?”
The Aurum+ Strategy was designed to solve this issue. By blending risk-managed allocations to gold and bitcoin, the strategy seeks to deliver a prudent way to capture strong risk-adjusted returns while mitigating the risk that comes with those assets.
As we head into a period of unique fiscal and monetary policy coordination we believe that using passive allocations to gold and/or bitcoin as a partial replacement for fixed income a traditional portfolio is unlikely to achieve the desired results for investors.
The IDX Insights’ research paper outlines the long-term case for gold and the utility of using a risk-managed approach to seek asymmetric upside capture with mitigated risk.
Investors face a similarly difficult problem when incorporating bitcoin into a portfolio. Even with a 1% to 2% allocation, the prospect of a 90% drawdown or realized volatility greater than 100% is untenable for many investors.
Our “Risk-Managed” methodology seeks to provide risk-managed exposure to bitcoin through quantitative analysis of momentum. The Aurum+ Strategy seeks to deliver long exposure to bitcoin (through the Grayscale Bitcoin Trust; ticker: GBTC) at times when our team believes that the risk/return profile is disproportionately skewed to the upside. It is insufficient to our methodology that bitcoin simply has positive momentum. The momentum must be positive and increasing.
RG Alts believes that the strategy’s methodology generally presents a high bar for the strategy to undertake a risk allocation to bitcoin. Conversely, this same methodology generally sets a low bar for taking risk off the table. Once the team’s indicators reflect that the acceleration of price momentum has slowed, the strategy’s methodology moves to a risk-off allocation.
IDX Insights discusses Bitcoin with Fidelity Digital Assets Group...
IDX Insights along with Fidelity’s Digital Assets Group discuss the institutionalization of crypto-assets, the problems with high volatility (and drawdowns) and how the IDX employs a unique, rules-based approach to try to provide meaningful upside participation in a risk-managed fashion.
IDX Insights discusses Gold, Inflation, and more...
In a recent webinar, IDX Insights discusses gold, inflation, and the outlook of the global economy with featured guests Dennis Gartman (The Gartman Letter), Marcus Frampton (CIO of the Alaska Permanent Fund), and more…
IDX Insights, LLC is a leading quantitative research firm and alternative index provider which is affiliated with RG Alts, by virtue of common ownership.