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The Role of Gold in Today’s Global Multi-Asset Portfolio July 2019 | By George Milling-Stanley, Head of Gold Strategy, Global SPDR ETFs, Robin Tsui, APAC Gold Strategist, Global SPDR ETFs and Diego Andrade, Senior Gold Research Strategist, Global SPDR ETFs Traditionally, investors have used gold tactically with an aim to help preserve wealth during market corrections, times of geopolitical stress or persistent dollar weakness. However, the expanding universe of investable asset classes and the relative ease of shifting across different assets mean today’s typical multi-asset fund looks different than “balanced”stock-and-bond funds of the past. Given gold’s historically low or negative correlation with most other asset classes, we believe gold should be considered as a core diversifying asset with a long-term strategic role in multi-asset portfolios. In this paper, we examine how gold, through investing in SPDR® Gold Shares (GLD®), may improve the risk-return characteristics of a hypothetical multi-asset portfolio that includes global stocks, various classes of fixed income, real estate, private equity, commodities and, of course, gold. We found that holding between 2 percent and 10 percent of GLD between January 1, 20051 and June 30, 2019 may have improved the hypothetical portfolio’s cumulative returns, its Sharpe ratio and lowered its maximum drawdown compared to a portfolio without any gold-backed investments that is based on the asset weightings set forth in Figure 9. Gold as an Investable Asset: From IPO to ETF Since 1971, when President Nixon removed the US dollar from the Gold Standard, the price of gold has increased from $43.28 oz. to $1,409/oz. at the end of June 2019. Since that policy move, which we call “The Initial Public Offering of Gold,” the dollar gold price has increased at a compounded annual growth rate (CAGR) of 7.71 percent per year.2 The IPO of Gold unleashed gold’s long standing currency-like characteristics, giving it the potential to become a main stream investment. That potential became tangible with the launch of GLD in November 2004. The ETF gathered $1 billion in assets under management in just three days, making it very tradable almost immediately and allowing exposure to gold to rival the ease and efficiency of owning stocks.GLD’s arrival made it convenient for multi-asset portfolios to include gold. Today, research has shown how the modern multi-asset portfolio may be more efficient with a strategic allocation to gold playing a crucial role as apotential core diversifier.3 Figure 1: IPO of GOLD & SPDR Gold Shares 1, 2001, 6008004002, 000012016080402000 Fiat Currency World USD/Oz— Gold (USD/oz) — SPDR Gold Shares “I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.”– President Richard Nixon (August 15, 1971) 1925 1933 1940 1947 1954 1961 1968 1976 1983 1990 1997 2004 2011 2019 GLD® Price/Share Sources: From 1900–1967, The dollar price of gold is calculated from the average annual exchange rates of the dollar against the British pound taken from a table published for the London and Cambridge Economic Service by Times Newspapers Ltd. as part of The British Economy: Key Statistics. From 1968 — March 19, 2015, the gold price is based on the London Gold Fix, a daily survey of spot gold prices conducted by telephone. From March 20, 2015-present, the gold price is based on the LBMA Gold Price, which is determined twice each business day (10:30 a.m. and 3:00 p.m. London time) by participants in a physically settled, electronic and tradable auction. All gold prices from 1968-present based on data compiled by Bloomberg Finance L.P. Performance quoted of SPDR Gold Shares above represents past performance, which is no guarantee of future results.Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted. Visit spdrs.com for most recent month end performance.
State Street Global Advisors 2The Role of Gold in Today’s Global Multi-Asset PortfolioMining Gold’s Potential Strategic BenefitsWe see three potential strategic benefits as major reasonswhy multi-asset portfolio managers should considerincluding gold in their portfolios.1. Increase Portfolio DiversificationWhen building a multi-asset portfolio, investors mustconsider not only the potential or forecasted risk-returncharacteristics of a particular asset class, but also how thatasset class or market segment behaves relative to otherinvestments. Asset classes with high forecasted riskadjustedreturns are typically preferred. But investorsshould also look for asset classes that move differentlyrelative to one another.A low correlation between the asset classes would lowerportfolio volatility and therefore, all else being equal,increase portfolio diversification and enhance the overallrisk-adjusted return of the portfolio. Figures 2 and 3 depictgold’s historical correlation to major equity and bondmarkets. These very low or negative correlations highlightthe potential long-term diversification benefits of addinggold to a multi-asset portfolio.2. Hedge Tail RiskGold has historically been used to provide potential tailrisk mitigation during times of market stress, as it hastended to rise during stock market pullbacks. Figure 4shows that historically gold was able to deliver competitivereturns and outperformed other asset classes during anumber of past black swan events. This demonstratesthat including gold in a multi-asset portfolio may provideportfolio managers with a means of moderating marketvolatility and reducing portfolio drawdown.Figure 2: Gold has had Low or Negative Correlation withMajor Equity Markets Since2000Correlation-1.00-0.500.000.501.00Japanese Global US European APACex JapanLatinAmerica0.11 0.120.010.120.210.30Source: Bloomberg Finance L.P., State Street Global Advisors, data fromJanuary 1, 2000 to June 30, 2019.Correlations are calculated from monthly returns in USD. Asset classes representedby the following indices — Japanese: MSCI Japan Index; MSCI AC World DailyTR Index; US: S&P 500 Index; European: MSCI Europe Index; APAC ex Japan:MSCI ASIA PAC Ex Japan Index; Gold: LBMA Gold Price PM. Latin America: MSCIEmerging Markets Latin America Index.Figure 3: Gold has had Low Correlation with Major BondsMarkets Since 2000CorrelationUS AggregateBondsUS CorporateHigh YieldDebtEuroAggregateCorporateDebtUS Treasury US Corporate EmergingMarketDebt-1.0-0.50.00.51.00.290.13 0.130.22 0.28 0.34Source: Bloomberg Finance L.P., State Street Global Advisors, data fromJanuary 1, 2000 to June 30, 2019.Correlations are calculated from monthly returns in US Dollars. Asset classesrepresented by the following indices — US Aggregate Bonds: Bloomberg BarclaysU.S. Aggregate Bond Index Total Return; US Corporate High Yield Debt: BloombergBarclays U.S. Corporate High Yield Bond Index Total Return; Euro AggregateCorporate Debt: Bloomberg Barclays Europe Aggregate Corporate Bond Index TotalReturn; US Treasury: Bloomberg Barclays U.S. Treasury Bond Index Total Return;US Corporate Investment Grade Bonds: Bloomberg Barclays U.S. Corporate BondIndex; Emerging Market Debt: Bloomberg Barclays Emerging Markets USD AggregateBond Index Gold: LBMA Gold Price PM
State Street Global Advisors 3 The Role of Gold in Today’s Global Multi-Asset Portfolio 3. Manage Inflation Gold also has a long track record of offering some potential preservation of purchasing power in varying inflationary environments. Analyzing gold’s historical price performance since 1970 shows that during periods when the annual rate of inflation in the US has been below 2 percent, the gold price has risen at an average rate of 7.5 percent a year. Moreover, during periods of moderate inflation — defined as an annual increase between 2 and 5 percent — gold has risen at an average rate of 7.6 percent a year. But gold has shown its greatest historical effectiveness in preserving purchasing power during periods when inflation has been running above 5 percent a year. During such times, the gold price has increased by an average annual rate of 15.4 percent. In addition, the price of gold has been influenced historically by real rates of return. One of the main reasons why the gold price did not appreciate during the 1980s and 1990s was because other asset classes performed so well. Conversely, gold has appreciated at times when real returns on assets like bonds have been low. We compared gold prices with real returns, with real returns calculated by subtracting the US core consumer price index (excluding food and energy) from the yield of US10-year Treasury notes (Figure 6). Figure 5: Gold Returns in Different Inflation Scenarios* %01869312157.5 7.615.4 Low Inflation (<2%) Moderate Inflation (2%–5%) High Inflation (>5%) Source: Bloomberg Finance L.P., State Street Global Advisors, data from January 31, 1970 to June 30, 2019.Past performance is not a guarantee of future results. Performanceabove does not reflect charges and expenses associated with the fund orbrokerage commissions associated with buying and selling exchangetraded funds. Performance above is not meant to represent the performanceof any investment product.* Computed using average monthly gold returns and US CPI Figures fromJanuary 31, 1970 to June 30, 2019.Figure 6: Gold Returns vs. RealT-Note ReturnsSince1970**4008001,2001,600-2261002,000-614— Gold Price — Real RatesUSD/Oz %1970 1977 1984 1991 1998 2005 2012 2019Source: Bloomberg Finance, L.P., State Street Global Advisors, as ofJune 30, 2019.Past performance is not a guarantee of future results. Performanceabove does not reflect charges and expenses associated with the fundor brokerage commissions associated with buying and selling exchangetraded funds. Performance above is not meant to represent the performanceof any investment product.** Gold Price represented by LBMA Gold Price; Real Rates represented by10-year Treasury note yield minus US core Consumer Price Index (excludingfood and energy).Figure 4: Gold as a Tail Risk Hedge — Performance in Market DownturnQ4’ 2018ï® Bloomberg Barclays 7–10 Yr Treasury Index ï® Bloomberg Barclays US Aggregate Bond Indexï® MSCI All Country World Index ï® US Dollar Indexï® LBMA Gold Price PM ï® Bloomberg CommodityIndex40-40-2020-60 Dot ComMeltdownSeptember 11th 2002RecessionGFC SovereignDebt Crisis ISovereignDebt Crisis IIDebtCeiling CrisisBrexit%0Source: Bloomberg Finance L.P., State Street Global Advisors, as of December 31, 2018. Notes:Dot-Com Meltdown: 2/29/2000–3/30/2001; September 11 Terrorist Attacks:8/31/2001–9/28/2001; 2002 Recession: 2/28/2002–8/30/2002; Global Financial Crisis: 11/30/2007–3/31/2009; Sovereign Debt Crisis I: 4/30/2010–8/31/2010;Sovereign Debt Crisis II: 2/28/2011–10/31/2011; Debt Ceiling Crisis: 7/22/2011–8/8/2011; Brexit: 6/22/2016–6/27/2016. Q4’2018: 9/28/2018–12/31/2018.Past performance is not a guarantee of future results. Performance above does not reflect charges and expenses associated with the fund or brokeragecommissions associated with buying and selling exchange traded funds. Performance above is not meant to represent the performance of anyinvestment product. Performance data above derived from total return indices..
State Street Global Advisors 4The Role of Gold in Today’s Global Multi-Asset PortfolioIn the 1980s,T-notes averaged a real rate of return of4.50 percent, and 3.44 percent in the 1990s. Real returnscontinued to drop in the first decade of the new century,averaging 2.28 percent. Since the start of this decade, realrates have averaged 0.61 percent — the latest sharp droprelating to the Global Financial Crisis and the extraordinarycentral bank policies such as quantitative easing thatfollowed. The last time real rates were so low was in the1970s when they averaged 1.02 percent. Those low realrates were one of the major reasons why the price of goldappreciated from $43 an ounce at the time of the “IPO ofGold” to $512 at the end of 1979. Again, the disinflationarytrend over the past35-plus years and thelow-to-negativereal rates around the world that still prevail have been ingold’s favor, as Figure 6 shows.Case Study: Strategic Allocation to GLD in aGlobal Multi-Asset Portfolio“A Case for Global Diversification: Harnessing the GlobalMulti-Asset Market Portfolio” by State Street GlobalAdvisors’ Investment Solutions Group (ISG)4 examined theglobal investable opportunity set and its implications forinvestors. They defined the Global Multi-Asset MarketPortfolio (GMP) as the portfolio consisting of all investablecapital assets, where the proportion invested in each assetcorresponds to that asset’s market value divided by the sumof the market value of all assets in the portfolio. It is the sumof all investors’ holdings and a de facto proxy for theinvestable opportunity set available to all investors globally,or what is usually known as the ‘market portfolio.’ Thisrepresents a good starting point for many investors lookingto build a globally diversified investment portfolio.Figure 7: Gold ETFs vs. Other Gold Investment VehiclesGold ETFs Mutual Funds Gold Futures Gold Mining Stocks Gold Bars or Coins Paper Gold AccountsPotential Advantages • Transparency• Intraday TradingCapability*• Mostly backed byphysical gold• Mostly activelymanaged• May be able togenerate alpha• Leverage• Intraday TradingCapability*• Relatively largepositions withlow commissions• Leverage• Intraday TradingCapability*• Offers operating andfinancial leverage• Physical possession• Transparency• Ease of use• TransparencyConsideration • Asset-WeightedExpense ratio(â‰^37 bps)**• Asset-WeightedExpense ratio(â‰^102 bps)**• Managementof position• Basis risk• Have not exhibitedexhibited perfecttracking to gold price• Exposed to companyspecific factors• Transport costs• Storage costs• Insurance costs• Required to pay a‘premium’ over spot• Not backed byphysical goldTrade Characteristics • Tactical and Strategic • Strategic • Tactical • Tactical and Strategic • Strategic • StrategicSource: State Street Global Advisors, Bloomberg Finance L.P., as of June 30, 2019.* There can be no assurance that a liquid market will be maintained.** Source: Bloomberg Finance L.P., and SSGA. Based on expense ratios of the 22 currently-listed gold mutual funds and the four currently-listed US gold bullion ETFs, perBloomberg. (Comparison excludes US leveraged and inverse gold bullion ETFs). Asset-weighting more accurately reflects what investors in general are currently paying fortheir exposure.Figure 8: GLD has had Low Correlation to Other AssetClasses in the Hypothetical Portfolio-1.00-0.50 0.00 0.50 1.00MSCI All CountryWorld IndexBloomberg BarclaysGlobal AggregateGovernment Bond IndexBloomberg BarclaysGlobal AggregateCorporation Bond IndexBloomberg BarclaysWorld InflationLinked Bond IndexBloomberg BarclaysGlobal Corporate HighYield Bond IndexBloomberg BarclaysEmerging Markets USDAggregate Bond IndexGlobal Property ResearchGeneral IndexLPX Composite ListedPrivate Equity IndexBloomberg Commodity Index 0.480.070.220.390.200.460.430.530.15CorrelationSource: Bloomberg Finance L.P., State Street Global Advisors, data fromJanuary 1, 2005 to June 30, 2019.All correlation calculations above derived from monthly total return indices inUS dollars.
State Street Global Advisors 5The Role of Gold in Today’s Global Multi-Asset PortfolioTo examine the potential results of adding a 2%, 5% and 10%of GLD into a multi-asset portfolio, we constructedhypothetical global multi-asset portfolios based on theconcept of the GMP developed by ISG by:• Replicating the asset classes in the GMP with noninvest-able market indices• Slightly adjusting each asset weighting in the GMP toinclude commodities and assume no gold exposure atthe start (Portfolio A)• Subtracting the weight equally from the equities andgovernment-bonds asset classes (two asset classes withthe highest weights) to add in GLD at 2% (Portfolio B),5% (Portfolio C) and 10% (Portfolio D).Returns of the hypothetical blended portfolios coverthe period between January 1, 2005 and June 30, 2019,and the portfolios are rebalanced every 12 months tomaintain target portfolio weights.From the results shown in Figure 10, we found that underour hypothetical scenario:• Portfolios B, C and D had higher Sharpe ratios, lowermaximum drawdowns and lower standard deviationswith higher returns compared to Portfolio A;• Portfolio D had the highest Sharpe Ratio (0.52) andhighest cumulative return (135.88%);• Portfolio D had the lowest maximum drawdown(-29.43%).From a risk-adjusted return perspective, our hypotheticalblended portfolio results have shown that adding 2%, 5%,10% of GLD to the portfolio would have improved Sharperatios. The results illustrated that this hypothetical scenariousing broad indices to represent various asset classes thatincludes allocations of anywhere from 2% to 10% to GLDright after the ETF’s inception would have outperformedmulti-asset portfolios with identical exposure to indicesbut without equivalent allocations to GLD. From a riskmanagementperspective, hypothetical portfolios witha GLD allocation had lower maximum drawdowns. Forexample, a 10% allocation in GLD would have reducedmaximum drawdown by almost 390 bps compared tono allocation in GLD.5Seek an Dependable and Cost-Effective Wayto Invest in GoldGiven that that adding a 2% to 10% strategic assetallocation to GLD in a hypothetical multi-asset portfoliobetween January 1, 2005 and June 30, 2019 mayhave improved risk-adjusted return and reduced maximumdrawdown compared to the portfolio without any exposureto gold-backed investments, global multi-asset portfoliomanagers should consider the merits of including gold intheir portfolios.Figure 9: Asset Class Weightings for Hypothetical Blended Portfolios A, B, C and DWeighting (%)Asset Class Index/Fund Portfolio A Portfolio B Portfolio C Portfolio DEquity MSCI All Country World Index 40 39 37.5 35Total Equity 40 39 37.5 35Government Bonds Bloomberg Barclays Global Aggregate Government Bond Index 25 24 22.5 20IG Credit Bloomberg Barclays Global Aggregate Corporation Bond Index 16 16 16 16Inflation Linked Bonds Bloomberg Barclays World Inflation Linked Bond Index 2 2 2 2HY Bonds Bloomberg Barclays Global Corporate High Yield Bond Index 2 2 2 2EM Debt Bloomberg Barclays Emerging Markets USD Aggregate Bond Index 5 5 5 5Total Fixed Income 50 49 47.5 45Real Estate Global Property Research General Index 4 4 4 4Private Equity LPX Composite Listed Private Equity Index 4 4 4 4Commodities Bloomberg Commodity Index 2 2 2 2Gold SPDR® Gold Shares (GLD®) 0 2 5 10Total Alternative 10 12 15 20Hypothetical Portfolio Total 100 100 100 100Source: State Street Global Advisors, as of June 30, 2019.The asset allocation scenario is for hypothetical purposes only and is not intended to represent a specific asset allocation strategy or recommend aparticular allocation. Each investor’s situation is unique and asset allocation decisions should be based on an investor’s risk tolerance, time horizonand financial situation. It is not possible to invest directly in an index.
State Street Global Advisors 6 The Role of Gold in Today’s Global Multi-Asset Portfolio While investment in physical gold bullion is the most directway to invest in gold, it may involve higher ongoing costs fortransport, storage and insurance. Gold mining companiesmay be influenced by the gold price, but their growth and performance also depend on effective management, production costs, reserves and exploration, among other factors. Gold futures are widely used by investors looking for exposure to gold and have the benefit of being traded instandardized contracts on exchanges. Futures do not require full funding up front, which may be preferable to those investors looking for leverage, but the requirement to regularly roll futures contracts to maintain exposure doesmean ongoing management of the gold position is required for a longer-term strategic allocation. US- listed mutual funds with a precious metal strategy on average are more expensive than gold ETFs. 6 US mutual funds focused on precious metals together have an asset weighted average expense ratio of just below 102 basis pointscompared with an asset-weighted average expense ratio ofabout 37 bps forUS-listed ETFs backed by physical gold.Also, investing in physical-backed gold ETFs, like GLD, mayhelp to eliminate many of the issues mentioned above as thisinvestment vehicle seeks to provide a cost-effective way totrack the price of gold.The “IPO of Gold” helped legitimize gold as an asset class in1971 and the arrival of GLD in November 2004 transformedgold into an accessible mainstream investment. We believethat as the size and the number of investable asset classescontinue to grow, gold, an asset with historically low andnegative correlation with other asset classes, ought to playa more central strategic role in multi-asset portfolios.SPDR® Gold Shares Standard Performance as of June 30, 20191 Month (%) QTD (%) YTD (%) 1 Year (%) 3 Years (%) 5 Years (%) 10 Years (%)SinceInception11/18/2004 (%)Quarter EndNAV 8.73 8.66 9.72 12.23 1.77 0.99 3.78 7.82Market Value 8.00 9.17 9.86 12.26 1.73 0.79 3.87 7.74LBMA Gold Price PM 8.76 8.77 10.16 12.68 2.18 1.39 4.19 8.25Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so youmay have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted. Visit spdrs.com for most recent monthend performance.Gross Expense Ratio: 0.40%. The gross expense ratio is the fund’s total annual operating expense ratio. It is gross of any fee waivers or expense reimbursements. It can be found inthe fund’s most recent prospectus.Figure 10: Hypothetical Blended Portfolio ResultsHypothetical PortfolioGLDAllocation %AnnualizedReturn %CumulativeReturn %AnnualizedStandard Deviation % Sharpe Ratio*MaximumDrawdown (%)A 0 5.74 124.48 9.52 0.47-33.29B 2 5.80 126.44 9.46 0.48-32.54C 5 5.92 130.17 9.37 0.49-31.39D 10 6.10 135.88 9.31 0.52-29.43* Assumes risk-free rate of Citigroup3-monthT-bills.Source: Bloomberg Finance L.P., FactSet, State Street Global Advisors, as of June 30, 2019.The impact of adding GLD to an investor’s portfolio will vary based upon an investor’s asset allocation decisions and market performance, among otherthings. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and thereinvestment of dividends and other income. Returns do not represent those of a specific product but were achieved by mathematically combining the actualperformance data of the constituents as listed in Figure 9, according to their weightings detailed in Figure 9. Performance of the hypothetical blended portfolioassumes no transaction and rebalancing costs, so actual results will differ. Performance of SPDR® Gold Shares (GLD®) reflects annual expense ratio of 0.40percent. Methodology computation can be found at end of piece.All data based on monthly measures of performance.Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower thanthat quoted.Visit spdrs.com for most recent month end performance.
State Street Global Advisors 7 The Role of Gold in Today’s Global Multi-Asset Portfolio 1 SPDR Gold Shares was listed on the New York Stock Exchange on November 18, 2004, so returns of our hypothetical blended portfolio began with the first full year of GLD’s existence. 2 Bloomberg Finance L.P., State Street Global Advisors, August 13, 1971–June 30, 2019.3 Frederic Dodard and Abigail Greenway, A Case For Global Diversification: Harnessing the Global Multi-Asset Market Portfolio, IQ Insights, State Street Global Advisors, ISG EMEA, 2015.4 Ibid. 5 Maximum portfolio loss for Portfolio A, B, C and D occurred during 2007–2009, at the height of the global financial crisis. 6 Source: Bloomberg Finance L.P. and State Street Global Advisors. Based on expenseratios of the 22 currently-listed gold mutual funds and the four currently-listed USgold bullion ETFs, per Bloomberg. (Comparison excludes US leveraged and inversegold bullion ETFs). Asset-weighting more accurately reflects what investors in general are currently paying for their exposure. Glossary10-Year U.S. Treasury Note A debt obligation issued by the US government that matures in 10 years. The debt pays interest at a fixed rate once every six months and pays the face value to the holder at maturity. Black Swan An event that is beyond what is normally in the realm of what is expected and is thus very difficult to foresee. The term was made popular by Nassim Nicholas Taleb, a finance professor and trader who has authored a number of books on uncertainty, including “The Black Swan,” a discussion on the impact of random events. Bloomberg Barclays Emerging Markets USD Aggregate Index A hard currency emerging markets debt benchmark that includes US dollar-denominated debt from sovereign, quasi-sovereign, and corporate issuers in the developing markets. Bloomberg Barclays Euro-Aggregate Corporate Bond Index A rules-based benchmark measuring investment grade, euro-denominated, fixed rate issued by corporations. Only bonds with a maturity of 1 year and above are eligible. Bloomberg Barclays Global Aggregate Corporate Bond Index A benchmark of global investment-grade, fixed-rate corporate debt. This multi-currency benchmark includes bonds from developed and emerging markets issuers within the industrial, utility and financial sectors. Bloomberg Barclays Global Aggregate Government Bond Index A benchmark that provides a broad-based measure of the global investment-grade fixed income markets, with a focus on Treasuries and government-related debt from both developed- and emerging-market issuers. Bloomberg Barclays Global Corporate High Yield Bond Index A multi-currencyfixed-income benchmark of the global high yield debt market. The index represents the union of the US High Yield, thePan-European High Yield, and Emerging Markets (EM) Hard Currency High Yield Indices. The high yield and emerging markets subcomponentsare mutually exclusive. Bloomberg Barclays World Inflation Linked Bond Index A fixed-income benchmark that measures the performance of investment grade, government inflation-linked debt from 12 different developed-market countries. Bloomberg Barclays U.S. Aggregate Bond Index A benchmark that provides ameasure of the performance of the U.S. dollar denominated investment grade bond market. The “Agg” includes investment-grade government bonds, investment-grade corporate bonds, mortgage pass through securities, commercial mortgage backed securities and asset backed securities that are publicly for sale in the US.Bloomberg Barclays U.S. Corporate Bond Index A fixed-income benchmark that measures the investment-grade, fixed-rate, taxable corporate bond market. It includes USD denominated securities publicly issued by US andnon-US industrial, utility and financial issuers. Bloomberg Barclays Emerging Markets USD Aggregate Index A hard currency emerging markets debt benchmark that includes US dollar-denominated debtfrom sovereign, quasi-sovereign, and corporate issuers in the developing markets. Bloomberg Barclays U.S. High Yield Corporate Bond Index The BarclaysU.S. High Yield Index covers the universe of fixed rate,non-investment grade debt.Eurobonds and debt issues from countries designated as emerging markets (sovereignrating of Baa1/BBB+/BBB+ and below using the middle of Moody’s, S&P, and Fitch)are excluded, but Canadian and global bonds (SEC registered) of issuers innon-EMGcountries are included. The index includes both corporate andnon-corporate sectors. Bloomberg Barclays U.S. Treasury Bond Index A benchmark of US dollardenominated,fixed-rate, nominal debt issued by the US Treasury. Treasury bills areexcluded by the maturity constraint, but are part of a separate Short Treasury Index. Bloomberg Commodity Index A broadly diversified commodity price indexdistributed by Bloomberg Indexes that tracks 22 commodity futures and sevensectors. No one commodity can compose less than 2 percent or more than 15percent of the index, and no sector can represent more than 33 percent of the index.Brexit An abbreviation of the term “British Exit” referring to the UK referendumon June 23, 2016 that resulted in the country’s decision to withdraw from theEuropean Union. CPI, or Consumer Price Index A widely used measure of inflation at the consumerlevel that helps to evaluate changes in cost of living. Debt Ceiling Crisis A contentious debate in July 2011 regarding the maximumamount of money that the US government should be allowed to borrow. Congressdid end up immediately raising the “debt ceiling” by $400 billion, from $14.3 trillionto $14.7 trillion, with the possibility of future increases included in the agreement aswell, but the contentious nature of the debate led Standard and Poor’s to downgradethe US’credit rating from AAA to AA+, even though the U.S. did not default. Fiat Currency Currency that a government declares to be legal tender, but that it isnot backed by a physical commodity. The value of fiat money is linked to supply anddemand rather than the value of the material that the money is made of, such as goldor silver historically. Fiat money’s value is instead based solely on the faith and creditof the economy. Global Financial Crisis The economic crisis that occurred from 2007-2009 that isgenerally considered biggest economic challenge since the Great Depression of the1930s. The GFC was triggered largely by thesub-prime mortgage crisis, which ledto the collapse of systemically vital US investment banks such as Lehman Brothers.The crisis began with the collapse of two Bear Stearns hedge funds in June 2007,and the stabilization period began in late 2008 and continued until the end of 2009. Global Property Research General Index A broad-based global real estatebenchmark that contains all listed real estate companies that conform to GeneralProperty Research’s index-qualification rules, bringing the number of indexconstituents to more than 650. The index’s inception date was Dec. 31 1983.Gold Standard A monetary standard under which the basic unit of currency isdefined by a stated quantity of gold. In 1971 US President Richard Nixon endedthe ability to convert US dollars into gold at the fixed price of $35 per ounce. LBMA Gold Price The LBMA Gold Price is determined twice each business day —10:30 a.m. London time (i.e., the LBMA Gold Price AM) and 3:00 p.m. London time(i.e., the LBMA Gold Price PM) by the participants in a physically settled, electronicand tradable auction. LPX Composite Listed Private Equity Index A broad global listed private equityindex whose number of constituents is not limited. The LPX Composite includesall major private equity companies listed on global stock exchanges that fulfils theindex provider’s liquidity criteria. The index composition is well diversified acrosslisted private equity categories, styles, regions and vintage years. The index hastwo versions: a price index (PI) and a total return index (TR) that includes all payouts. MSCI ACWI Index, or MSCI All Country World Index A free-float weightedglobal equity index that includes companies in 23 emerging market countries and 23developed market countries and is designed to be a proxy for most of the investableequities universe around the world.
State Street Global Advisors 8The Role of Gold in Today’s Global Multi-Asset PortfolioReal Rate of Return The return realized on an investment, usually expressedannually as a percentage, which is adjusted to reflect the effects of inflation or otherexternal factors, on theso-called nominal return. The real rate of return is calculatedas follows: Real Rate of Return = Nominal Interest Rate — Inflation. Sharpe Ratio Ameasure for calculating risk-adjusted returns that has become the industry standardfor such calculations. It was developed by Nobel laureate William F. Sharpe. TheSharpe ratio is the average return earned in excess of the risk-free rate per unit ofvolatility or total risk. The higher the Sharpe ratio the better.Sharpe Ratio A measure for calculating risk-adjusted returns that has becomethe industry standard for such calculations. It was developed by Nobel laureateWilliam F. Sharpe. The Sharpe ratio is the average return earned in excess of therisk-free rate per unit of volatility or total risk. The higher the Sharpe ratio the better.Sovereign Debt Crisis A period of time beginning in 2008 when several Europeancountries on the periphery of the Eurozone became unable to repay or refinancegovernment debt or bail out banks without the assistance of the European CentralBank and the International Monetary Fund. It was brought to heel in July 2012with the ECB’s pledge to save the euro and the Eurozone at all costs. While thecrisis began with the collapse of Icelandic and Irish banks, it became largely focusedon southern European countries — mainly Greece, but also Spain, Portugal andeven Italy.Standard Deviation A statistical measure of volatility that quantifies the historicaldispersion of a security, fund or index around an average. Investors use standarddeviation to measure expected risk or volatility, and a higher standard deviationmeans the security has tended to show higher volatility or price swings in the past.As an example, for a normally distributed return series, abouttwo-thirds of the timereturns will be within 1 standard deviation of the average return.ssga.comHypothetical Blended Portfolio Performance MethodologyReturns shown in Figure 10 do not represent those of a fund but were achieved bymathematically combining the actual performance data of MSCI AC World Daily TRIndex, Bloomberg Barclays Global Aggregate Government Bond Index, BloombergBarclays Aggregate Global Corporate Bond Index, Bloomberg Barclays EmergingMarkets Debt Index, Global Property Research General Index, S&P Listed PrivateEquity Index, Bloomberg Barclays World Inflation Linked Bond Index, BloombergBarclays Global Corporate High Yield Index, S&P GSCI Index, and SPDR® GoldShares (GLD®) between January 1, 2005 and December 31, 2018. Each portfolioisre-balanced at the beginning of each year to maintain target portfolio weights.The performance assumes no transaction and rebalancing costs, so actual resultswill differ. It is not possible to invest directly in an index. Performance of GLD reflectsannual expense ratio of 0.40%. The impact of adding GLD to an investor’s portfoliowill vary based upon an investor’s asset allocation decisions and market performance,among other things.Important Risk InformationThe views expressed in this material are the views of George Milling- Stanley,Robin Tsui and Diego Andrade and are subject to change based on market and otherconditions. This document contains certain statements that may be deemed forwardlookingstatements. Please note that any such statements are not guarantees of anyfuture performance and actual results or developments may differ materially fromthose projected.All information has been obtained from sources believed to be reliable, but itsaccuracy is not guaranteed. There is no representation or warranty as to the currentaccuracy, reliability or completeness of, nor liability for, decisions based on suchinformation and it should not be relied on as such.The information provided does not constitute investment advice and it should not berelied on as such. It does not take into account any investor’s particular investmentobjectives, strategies, tax status or investment horizon. You should consult your taxand financial advisor. All material has been obtained from sources believed to bereliable. There is no representation or warranty as to the accuracy of the informationand State Street shall have no liability for decisions based on such information.While the shares of ETFs are tradable on secondary markets, they may not readily tradein all market conditions and may trade at significant discounts in periods of market stress.There can be no assurance that a liquid market will be maintained for ETF shares.Government bonds and corporate bonds generally have more moderate short-termprice fluctuations than stocks, but provide lower potential long-term returns.Foreign investments involve greater risks than US investments, including political andeconomic risks and the risk of currency fluctuations, all of which may be magnified inemerging markets.
State Street Global Advisors 9The Role of Gold in Today’s Global Multi-Asset Portfolio© 2019 State Street Corporation. All Rights Reserved.ID25053-1996883.9.1.AM.RTL 0719 Exp. Date: 09/30/2019Asset Allocation is a method of diversification which positions assets among majorinvestment categories. Asset Allocation may be used in an effort to manage risk andenhance returns. It does not, however, guarantee a profit or protect against loss.Diversification does not ensure a profit or guarantee against loss.Investments insmall-sized companies may involve greater risks than in those oflarger, better known companies.Equity securities may fluctuate in value in response to the activities of individualcompanies and general market and economic conditions.Bonds generally present less short-term risk and volatility than stocks, but containinterest rate risk (as interest rates raise, bond prices usually fall); issuer defaultrisk; issuer credit risk; liquidity risk; and inflation risk. These effects are usuallypronounced for longer-term securities. Any fixed income security sold or redeemedprior to maturity may be subject to a substantial gain or loss.International Government bonds and corporate bonds generally have moremoderate short-term price fluctuations than stocks, but provide lower potentiallong-term returns.Increase in real interest rates can cause the price of inflation-protected debtsecurities to decrease. Interest payments on inflation-protected debt securitiescan be unpredictable.Investing in high yield fixed income securities, otherwise known as junk bonds,is considered speculative and involves greater risk of loss of principal and interestthan investing in investment grade fixed income securities. These Lower-qualitydebt securities involve greater risk of default or price changes due to potentialchanges in the credit quality of the issuer.Investing in futures is highly risky. Futures positions are considered highly leveragedbecause the initial margins are significantly smaller than the cash value of thecontracts. The smaller the value of the margin in comparison to the cash value of thefutures contract, the higher the leverage. There are a number of risks associated withfutures investing including but not limited to counterparty credit risk, currency risk,derivatives risk, foreign issuer exposure risk, sector concentration risk, leveraging andliquidity risks.Derivative investments may involve risks such as potential illiquidity of the marketsand additional risk of loss of principal.The use of leverage, as part of the investment process, can multiply marketmovements into greater changes in an investment’s value, thus resulting inincreased volatility of returns.Growth stocks may underperform stocks in other broad style categories (and thestock market as a whole) over any period of time and may shift in and out of favorwith investors generally, sometimes rapidly.The trademarks and service marks referenced herein are the property of theirrespective owners. Third party data providers make no warranties or representationsof any kind relating to the accuracy, completeness or timeliness of the data and haveno liability for damages of any kind relating to the use of such data.Investing in commodities entails significant risk and is not appropriate forall investors.Important risk informationInvesting involves risk, and you could lose money on an investment in SPDR® GoldTrust (“GLD®”).ETFs trade like stocks, are subject to investment risk, fluctuate in market value andmay trade at prices above or below the ETFs’ net asset value. Brokerage commissionsand ETF expenses will reduce returns.Commodities and commodity-index linked securities may be affected by changesin overall market movements, changes in interest rates, and other factors such asweather, disease, embargoes, or political and regulatory developments, as well astrading activity of speculators and arbitrageurs in the underlying commodities.Frequent trading of ETFs could significantly increase commissions and other costssuch that they may offset any savings from low fees or costs.Diversification does not ensure a profit or guarantee against loss.Investing in commodities entails significant risk and is not appropriate forall investors.Important Information Relating to SPDR® Gold Trust (“GLD®”):The SPDR Gold Trust (“GLD”) has filed a registration statement (includinga prospectus) with the Securities and Exchange Commission (“SEC”)for the offering to which this communication relates. Before you invest,you should read the prospectus in that registration statement and otherdocuments GLD has filed with the SEC for more complete information aboutGLD and this offering. Please see the GLD prospectus for a more detaileddiscussion of the risks of investing in GLD shares. The GLD prospectus isavailable by clicking here. You may get these documents for free by visitingEDGAR on the SEC website at sec.gov or by visiting spdrgoldshares.com.Alternatively, the Trust or any authorized participant will arrange to sendyou the prospectus if you request it by calling 866.320.4053.GLD is not an investment company registered under the Investment Company Actof 1940 (the “1940 Act”) and is not subject to regulation under the CommodityExchange Act of 1936 (the “CEA”). As a result, shareholders of the Trust do not havethe protections associated with ownership of shares in an investment companyregistered under the 1940 Act or the protections afforded by the CEA.GLD shares trade like stocks, are subject to investment risk and will fluctuate inmarket value. The value of GLD shares relates directly to the value of the gold heldby GLD (less its expenses), and fluctuations in the price of gold could materially andadversely affect an investment in the shares. The price received upon the sale of theshares, which trade at market price, may be more or less than the value of the goldrepresented by them. GLD does not generate any income, and as GLD regularly sellsgold to pay for its ongoing expenses, the amount of gold represented by each Sharewill decline over time to that extent.The World Gold Council name and logo are a registered trademark and used with thepermission of the World Gold Council pursuant to a license agreement. The WorldGold Council is not responsible for the content of, and is not liable for the use of orreliance on, this material. World Gold Council is an affiliate of GLD’s sponsor.GLD® is a registered trademark of World Gold Trust Services, LLC used with thepermission of World Gold Trust Services, LLC.Standard & Poor’s®, S&P® and SPDR® are registered trademarks of Standard& Poor’s Financial Services LLC, a division of S&P Global (S&P); Dow Jones is aregistered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and thesetrademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI)and sublicensed for certain purposes by State Street Corporation. State StreetCorporation’s financial products are not sponsored, endorsed, sold or promoted bySPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and noneof such parties makes any representation regarding the advisability of investing insuch product(s) nor do they have any liability in relation thereto.For more information, please contact the Marketing Agent for GLD:State Street Global Advisors Funds Distributors, LLC, One Iron Street,Boston, MA, 02210; T: +1 866 320 4053 spdrgoldshares.com.Before investing, consider the funds’ investment objectives,risks, charges and expenses. To obtain a prospectus whichcontains this and other information, call 866.787.2257 or visitspdrs.com. Read it carefully.
SPDR® GOLD TRUST has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the Trust and this offering. You may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, the Trust or any Authorized Participant will arrange to send you the prospectus if you request it by calling toll free at1-866-320-4053 or contacting State Street Global Advisors Funds Distributors, LLC, One Lincoln Street, Attn: SPDR® Gold Shares, 30th Floor, Boston, MA 02111.