A deeper dive into alternative-investment strategies Thursday at the Morningstar ETF conference in Chicago shed fresh light on why gold should not be ignored.
“Gold is an interesting asset class, which we think is both a commodity and a currency,” said Sean Clark, chief investment officer at Clark Capital Management Group Inc.
"It's a commodity in that it's a store of value, but obviously, it also acts as a currency," he added.
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Mr. Clark said gold is his largest weight among his direct commodity exposures. “We still see gold moving higher, as governments around the world are devaluing their currencies in what seems like a race to the bottom, and those hard assets are direct benefactors,” he said.
On the subject of market volatility, Mr. Clark noted that in a recent study, 80% of investors surveyed ranked volatility as a top concern. With that in mind, he said, he keeps between 5% and 20% of an equity portfolio allocated to a market volatility strategy.
Fellow panelist Christian Wagner, founder and chief investment officer of Longview Capital Management LLC, disputed the definition of volatility as an asset class, instead describing it as an "alternative trading tool."
"If you're going to use volatility as a hedge, the most important thing to decide is what you're trying to hedge," he said. "It seems since 2008, everyone is looking for ways to hedge black swans."
Mr. Wagner explained that a lot of investors are going overboard in efforts to defend themselves against an extremely rare market event, often characterized as a black swan.
"If I go deer hunting and get accidentally shot by another hunter, that's not a black swan event," he said. "But if I go deer hunting, and a parachutist falls out of the sky and lands on me, that's a black swan event."
Another big misunderstanding about volatility is that "when it's high, it is good for stocks." according to Mr. Wagner.
When session moderator Nadia Papagiannis of Morningstar asked the panel about any products the ETF space might still need, the consensus was that there are already too many ETFs.
"The market is saturated with product right now," Mr. Clark said. "There's too many out there and there's got to be a cleansing."
However, when further pressed, he acknowledged: “We'd like to see a lower-quality, high-yield debt product, because when high-yield is moving the lower-quality stuff is outperforming.”
