Hedge Fund Billionaire Paulson Kept its Stake in Gold ETF

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Feb 20, 2015

Gold is a limited commodity that retains consumer´s purchasing power even under inflationary economies. The advantages are that gold is not at the mercy of government policy so it cannot be easily issued or mined. Additionally, it is used to hedge, so it is a currency hedge, an inflation hedge and, most importantly, a diversification tool in your portfolio.

Days ago, gold prices rebounded from a six-week low. The metal has reversed losses after minutes from the Federal Reserve's last meeting show some concern about raising rates soon. A delay in raising interest rates benefit holding gold in your portfolio and investors should pay attention to this strategy.

Hedge fund guru

Hedge fund manager John Paulson (Trades, Portfolio) keeps gold stake. John Paulson (Trades, Portfolio) is the president and portfolio manager of Paulson & Co. Inc. The hedge fund is the largest holder of the SPDR Gold Trust, kept its stake at 10.23 million shares, worth $1.16 billion, in the three months ended Dec. 31, a government filing showed recently. The stake's value was cut from $1.19 billion in the third quarter.

Gold exchange-traded fund

An ETF is a special type of fund that invests in a portfolio of stocks or bonds. The aim is to mimic the performance of a specified index. As well as the shares, they are traded in the secondary market at any time (market hours) and investors can sell short. The advantages of this investment vehicle are that they provide an efficient method of diversification because investors gain exposure to an index or a particular sector. Secondly, investors know the composition of the fund at all times. Moreover, as they are a passively managed fund, they have good operating expense ratios.

The SPDR Gold Shares

The SPDR Gold Shares (GLD, Financial) is an investment fund incorporated in the U.S. and is managed by a team at SSgA Funds Management Inc. This fund is one of 126 SSgA Funds Management Inc. exchange-traded funds launched since 12/16/1998. The investment objective of the Trust is to reflect the performance of the price of gold bullion, (less the trust´s expenses). It is the largest and most liquid physically backed gold offering.

As we can appreciate in the next table, on a year to date basis, the ETF has returned 2.08%.

Period Return
1 month -5,37%
3 month 1,99%
YTD 2,08%

Final comment

In a world where inflation has been almost nonexistent in most countries, there is low demand for gold as a safe-haven asset and inflationary hedge. We continue to believe the U.S. economy is showing signs of improvement, and the dollar is getting stronger, and we expect for the future that production costs may still be raising.

Hedge fund gurus have also been active in relation to this ETF. Ken Fisher (Trades, Portfolio) bought it in the last quarter of 2014.

Disclosure: Omar Venerio holds no position in any stocks or funds mentioned.