Precious Metal Allocations and Portfolio Management09-03-2014 |
Sources: Rates Data and Economic Calendar—Bloomberg Markets as of 9/1/14; Equity Market Returns and Fixed Income and Alternatives Data—Wells Fargo Advisers as of 9/1/14
Precious Metal Allocations and Portfolio Management
Precious metals have long been considered an inflation hedge and more recently a safe haven investment for investors during periods of stock market volatility. Over the past ten years, however, more and more attention is being paid to their growth potential. Gold in particular has been in focus over the past decade due to its meteoric rise from $414.90 in September of 2004 to its high of over $1,880 in September of 2011, a cumulative return of over 450%! Since then, its price has come down to trade around $1,265 as of the time of this writing and there is a tremendous amount of speculation over the future direction of the yellow metal with a number of high profile hedge fund managers betting on both sides. So far this year, Gold has experienced some volatility and after falling almost 5% this quarter, is still up 4.8% for the year, while Silver, after falling over 9% during the quarter is now down 1.6% for the year (as represented by the gold ETF GLD and Silver ETF SLV.) Although many investors have recently attempted to profit by speculating on precious metal prices, investors must consider the risks involved with betting on any one asset class in isolation.
We at Hennion & Walsh do not have a high conviction on the price movement of Gold or Silver in the short term; however, we believe that both play an important role in portfolio construction. For investors focusing on minimizing risk within their portfolio, asset classes that offer returns with low correlation to both stocks and bonds can reduce the overall risk they take. Optimizing portfolios by minimizing risk while maintaining growth potential is the focus in Hennion and Walsh’s Asset Management program and we recognize that achieving this objective requires a dynamic approach to portfolio management. We encourage investors to review and quantify the amount of risk they are taking within their investment portfolios and avail ourselves to anyone interested in learning more about our approach.
Important Information and Disclaimers
Past Performance is not a guide to future performance.
Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.
There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.
The prices of small company and mid cap stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.
Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.
Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.
Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.
MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.
MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.
Russell 3000: The Russell 3000 measures the performance of the 3000 largest U.S. companies based on total market capitalization and represents about 98% of the investible U.S. Equity market.
ML BOFA U.S. Corp Mstr [Merill Lynch U.S. Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire U.S. corporate bond market over time.
ML Muni Master [Merill Lynch U.S. Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.
Investors cannot directly purchase any index.
LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.
The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.
The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITSs that primarily own and operate income-producing real estate.