Protecting your portfolio in a down market. Two investment pros discuss the benefits of stock options and gold.
WEALTHTRACK Episode #1445; Originally Broadcast on April 27, 2018
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- Co-Portfolio Manager,
- Tocqueville Gold Fund
- Lead Portfolio Manager,
- Swan Defined Risk Fund
Up until recently protecting your portfolio from market declines seemed like an exercise in futility. Being cautious cost you. With the benefit of 20/20 hindsight we all should have been fully invested in the U.S. stock market since the March 2009 lows, at least until the end of 2017, and not worried about diversifying into other more defensive asset classes.
That notion is a pipe dream of course. Most of us were invested in the stock market going into the financial crisis. Had we been fully invested in the S&P 500 during the throes of it, between late 2007 and early 2009 we would have suffered a 54% decline. During that same tumultuous period, U.S. Treasury securities rose nearly 16% and gold appreciated nearly 26%. That’s the reason financial advisors recommend portfolio diversification, to mitigate those types of losses. But how much should we diversify and into what?
This week’s guests have two different responses with one that overlaps. John Hathaway is Chairman of Tocqueville Management Corporation, a deep value-oriented investment advisory firm which manages money for institutions and high net worth individuals as well as several mutual funds. Hathaway is now co-portfolio manager of the Tocqueville Gold Fund which he has managed since its 1998 inception. Rated 4-star byMorningstar, the fund which invests in both gold and gold mining stocks has delivered 9% plus annualized returns since inception, but the fund and gold-related investments have been poor and volatile performers in recent years.
Randy Swan is Founder, CEO and lead portfolio manager of Swan Global Investments, an investment advisory firm he launched in 1997 which now has more than $5 billion dollars under management in separately managed accounts and more recently several mutual funds. Its flagship Swan Defined Risk Fund, started in 2012 has earned a Bronze Medalist rating from Morningstar based on Swan’s track record of “protecting shareholders across multiple market cycles.”
Swan’s proprietary Defined Risk Strategy used in the fund has a core of equally weighted S&P 500 sector ETFs, which he then consistently sells out of the money calls and puts on to bring in a regular stream of income and protect the portfolio in down markets. During the worst year of the financial crisis, the Defined Risk Strategy declined only 4.5 % versus the S&P 500’s 37% drop and a 22% decline in a 60% equity / 40% bond portfolio.
How urgent is the need for downside protection in the current market? They will respond.
As usual, this week’s program is available to our PREMIUM subscribers immediately. In our exclusive EXTRA feature, Hathaway will discuss the loneliness of being a gold investor and how he copes with an unpopular asset class, and Swan will explain his decision to leave corporate America, taking a career risk to help investors better manage market risk.
Thank you for spending your precious time with us. Have a lovely weekend, and make the week ahead a profitable and a productive one.
FOLLOW THE ADVICE OF THIS WEEK’S GUESTS AND OWN SOME GOLD BULLION
- Gold is not an investment
- It is an insurance policy against disaster
- You can own it in various forms
- The actual metal in small bars or coins
- ETFs: least expensive and most liquid form
- GLD – SPDR® Gold Shares
- – Expense ratio = 40 basis points / .40%
- IAU – iShares Gold Trust
- – Expense ratio = 25 basis points / .25%
No Bookshelf titles this week.
HATHAWAY: SECURE INVESTMENT
- Buy physical gold
- Outside banking system
- Reserve asset
SWAN: NON-CORRELATED ASSET
- Buy life settlements
- Individual insurance policies
- Stable, high rate of return
- Non-correlated to the market
No stock mentions in this episode.
This transcript will be available soon. More information regarding WEALTHTRACK transcripts can be found here
From the WEALTHTRACK Archives: John Hathaway last appeared in 2012. This is Randy Swans first appearance.
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SWAN: ACCEPTING RISK
Two decades ago Randy Swan left his suits and career security at a major accounting firm to start up Swan Global Investments, taking on career risk to help investors better manage market risk.
HATHAWAY: GOLD WILDERNESS
John Hathaway has been managing the Tocqueville Gold fund since its inception in 1998. With gold out of favor for much of the last decade it’s been a lonely ride.