2020 ETF Market Outlook

Position to Temper the Impact of Macro Volatility

With stocks and bonds expensive, as well as susceptible to macro-induced volatility shocks, focus on strategies with low correlations to traditional markets.

Stocks get all the press. Daily financial news programs cover the bull market reaching new all-time highs, and an avalanche of articles follows, proclaiming that either there is more room to run or that it’s a sign of a market top. The 24/7 news cycle churns out the story and presidential tweets keep the hoopla going.

By mid-November, the S&P 500 Index, NASDAQ Composite Index, and Dow Jones Industrial Average Index had each just hit all-time highs,1  and the MSCI ACWI IMI Index was only 2% below its own all-time high.2  Lost in all the commotion is that as stocks have hit multiple all-time highs in 2019, so have bonds. In fact, bonds have broken more records than stocks in 2019. The Bloomberg Barclays US Aggregate Bond Index (Agg) has already registered 51 all-time highs this year, after just five new highs over the past two years.

With broad-based stocks and bonds at all-time highs — and an ever-evolving macro backdrop also experiencing all-time high policy uncertainty3  — having an alternative solution with low correlations to traditional markets as part of the asset allocation mix may be beneficial in 2020.

Icarus Level Valuations Lead to a Smaller Safety Net

Valuations are now becoming a concern due to all of these recent all-time highs. Certain analysis will point to the Fed model, a system introduced in the early 1990s that compares the stock earnings yield to the yield on bonds. If the stocks’ yield is above that of bonds, stocks are attractive, and vice versa. Today, the Fed model reveals that stocks are attractive, given that the earnings yield is 4.87% for US equities, versus a yield-to-worst of 2.4% for the Agg.4  A global view reveals the same conclusion — there is a 3.6 percentage point difference between global stocks and the global Agg.5

Of course, by comparing two equally expensive segments relative to their own history, the Fed model obscures the larger point: stocks and bonds are both rich today versus their own history. And that matters more for portfolio construction. As shown below, the percentile ranking for a five-factor ensemble valuation metric6  for both US and global stocks plotted against the percentile ranking for the yields on bonds (for bonds, a high ranking equals low yields) shows that both have elevated valuations.

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Source: Bloomberg Finance L.P., Calculations by SPDR Americas Research as of 11/8/2019. Past performance is not a guarantee of future results.

High valuations indicate that there is less room to maneuver if volatility strikes, as fundamentals are unable to act as a backstop, or safety net. They create an inability to fully offset duration-induced price declines or to reduce the risk of investors no longer willing to pay high multiples for declining earnings growth.

Navigating Macro Risk Surprises

The larger risk to valuations is the confluence of risks that are difficult to model or prepare for. Geopolitical events have ignited macro risk surprises, upending sentiment and briefly knocking the market off its course. In fact, the Citi Macro Risk Index has oscillated between near five-year highs and lows over the past 18 months.7 The future is unlikely to be any less unpredictable, with another UK election, a new European Central Bank (ECB) president advocating more fiscal change rather than monetary change, a contentious US election during an impeachment inquiry, renewed unrest in the Middle East, and populist angst sweeping across the world.

“Form ever follows function” is a popular phrase coined by architect Louis Sullivan, but it applies to the construction of portfolios as well as skyscrapers. With bonds expensive and stocks susceptible to volatility shocks, investors may need to consider low-correlating strategies to traditional markets. Yet, it is important to note that the “form” of these nontraditional strategies does not need to be complex to achieve the “function” of enhanced portfolio efficiency, asymmetric return capture and risk reduction.

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Source: Bloomberg Finance L.P., Calculations by SPDR Americas Research. Data from January 1, 1999  – October 31, 2019. Gold = gold spot price. Commodities = S&P GSCI Total Return Index, REITs = FTSE NAREIT All Equity REITS Total Return Index, Hedge Funds = HFRI FOF Diversified Index, Private Equity = LPX50 Listed Private Equity Total Return Index. Correlations based on monthly returns against a 60/40% allocation of the MSCI All-Country World Index Total Return Net Index and the Bloomberg Barclays Global Aggregate Bond Index, rebalanced monthly. Past performance is not a guarantee of future results.  

Golden Threads

Gold is a simple, transparent and relatively liquid option among the opportunity set of alternative assets. This is particularly true given the shifting correlations for many proposed diversifying assets and liquid alternatives. Since the 2008 financial crisis, gold has provided a source of low correlation to a balanced stock and bond portfolio, and it has seen a decrease from its correlation compared with before and during the crisis.8 This has not been the case for other alternatives, such as commodities and REITs, which have seen a dramatic extension in their correlations since 2008.9

The historical low-correlation structure of gold to stocks and bonds10 has manifested itself in positive average returns during bouts of volatility for each market. During trading weeks when the CBOE VIX Index experienced a two standard deviation move from its mean, gold’s average weekly return was +0.14%, versus the S&P 500 return of -1.24%, on average. And as shown below, gold has averaged a weekly return of 0.54%, on average, when rate volatility, as measured by the MOVE Index, has spiked alongside a decline in equities.

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Source: Bloomberg Finance L.P., Calculations by SPDR Americas Research Data from 1/1/1990 - 11/08/2019. Past performance is not a guarantee of future results

Implementation Ideas

In 2020, gold may provide a robust and multi-faceted source of diversification, as evidenced by its historical correlation structure and performance during prior tumultuous risk-on events. Investors seeking to mitigate the impact of  idiosyncratic macro shocks on portfolios amid
elevated valuations for traditional assets may consider the SPDR® Gold Family:


SPDR® Gold Shares seeks to reflect the performance of the price of gold bullion, less the Trust's expenses. GLD allows investors to place a higher emphasis on liquidity and trading costs.


SPDR® Gold MiniSharesSM seeks to reflect the performance of the price of gold bullion less the Trust's expenses. GLDM enables investors to place a higher emphasis on share price and management fees.


1 Bloomberg Finance L.P. as of 11/13/2019

2 Bloomberg Finance L.P. as of 11/13/2019

3 Source: Bloomberg Finance L.P. based on data from Boom, Baker, Davis As of September 30, 2019.

4 Bloomberg Finance L.P. as of 11/13/2019 based on the S&P 500 Index and Bloomberg Barclays US Aggregate Bond Index

5 Bloomberg Finance L.P. as of 11/13/2019 based on the MSCI World Index and Bloomberg Barclays Global Aggregate Bond Index

6 The five metrics are Price-to-Book, Price-to-Earnings, Price-to-Next-Twelve-Month-Earnings, Price-to-Sales, and Enterprise Value-to-EBITDA

7 Bloomberg Finance L.P. as of 11/13/2019

8 Bloomberg Finance L.P., Calculations by SPDR Americas Research. Data from January 1, 1999 – October 31, 2019.

9 Bloomberg Finance L.P., Calculations by SPDR Americas Research. Data from January 1, 1999 – October 31, 2019.

10 The spot price of gold has a historical correlation to the MSCI World Index of 0.06 and the Bloomberg Barclays US Aggregate Bond Index of 0.21 from 10/1989 to 10/2019 based on monthly returns per Bloomberg Finance L.P. as of 10/31/2019.


Bloomberg Barclays U.S. Aggregate Bond Index

A benchmark that provides a measure of the performance of the US dollar denominated investment grade bond market, which includes investment grade bond market, investment grade government bonds, investment grade corporate bonds, mortgage pass through securities, commercial mortgage backed securities.


A measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.

Citi Macro Risk Index

The Citi Macro Risk Index measures risk aversion in global financial markets. It is an equally weighted index of emerging market sovereign spreads, US credit spreads, US swap spreads and implied FX, equity and swap rate volatility.

Dow Jones Industrial Average Index

A price-weighted benchmark of 20 “blue-chip” US stocks that, at 100-plus years, is the oldest continuing U.S. market index. Price weighting means stocks in “the Dow” with higher share prices are given a greater weight in the index. Launched in 1896, the Dow was named for its inventor Charles Dow and his partner Edward Jones.

FTSE NAREIT All Equity REITS Total Return Index

A free-floated adjusted, market capitalization-weighted index of U.S. equity REITs. Constituents of the index include all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real property.

HFRI FOF Diversified Index

FOFs classified as “Diversified” exhibit one or more of the following characteristics: invests in a variety of strategies among multiple managers; historical annual return and/or a standard deviation generally similar to the HFRI Fund of Fund Composite Index; demonstrates generally close performance and returns distribution correlation to the HFRI Fund of Fund Composite Index. A fund in the HFRI FOF Diversified Index tends to show minimal loss in down markets while achieving superior returns in up markets.

LPX50 Listed Private Equity Total Return Index

Designed and calculated by LPX Group, index contains the largest private equity companies listed on global stock exchanges. The index composition is well diversified across listed private equity categories, styles, regions and vintage years.

MOVE Index

A well-recognized measure of U.S interest rate volatility that tracks the movement in U.S. Treasury yield volatility implied by current prices of one-month over-the-counter options on 2-year, 5-year, 10-year and 30-year Treasuries.


A free-float weighted global equity index that includes companies in 23 emerging market countries and 23 developed market countries and is designed to be a proxy for most of the investable equities universe around the world.

NASDAQ Composite Index

The market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities.

Standard Deviation

A statistical measure of volatility that quantifies the historical dispersion of a security, fund or index around an average. Investors use standard deviation to measure expected risk or volatility, and a higher standard deviation means the security has tended to show higher volatility or price swings in the past. As an example, for a normally distributed return series, about two-thirds of the time returns will be within 1 standard deviation of the average return.

S&P GSCI Total Return Index

A composite index of commodities that measures the performance of the commodity market. The index is designed to be investable, and there are ETF products designed to track its performance The S&P GSCI automatically rolls futures contracts, which may not be an optimal investment strategy.

Important Risk Discussion

The views expressed in this material are the views of Michael Arone and Matthew Bartolini through the period ended November 15, 2019 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA's express written consent.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

Important Risk Information

Investing involves risk, and you could lose money on an investment in each of SPDR® Gold Shares Trust ("GLD®") and SPDR® Gold MiniSharesSM Trust ("GLDMSM"), a series of the World Gold Trust (together, the "Funds").

Commodities and commodity-index linked securities may be affected by changes in overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes, or political and regulatory developments, as well as trading activity of speculators and arbitrageurs in the underlying commodities.

Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.

Past performance is not a guarantee of future results.

Diversification does not ensure a profit or guarantee against loss.

Investing in commodities entails significant risk and is not appropriate for all investors.

Important Information Relating to SPDR® Gold Trust ("GLD®") and SPDR® Gold MiniSharesSM Trust ("GLDMSM "):
The SPDR Gold Trust ("GLD") and the World Gold Trust have each filed a registration statement (including a prospectus) with the Securities and Exchange Commission ("SEC") for GLD and GLDM, respectively. Before you invest, you should read the prospectus in the registration statement and other documents each Fund has filed with the SEC for more complete information about each Fund and these offerings. Please see each Fund's prospectus for a more detailed discussion of the risks of investing in each Fund's shares. The GLD prospectus is available by clicking here and the GLDM prospectus is available by clicking here. You may get these documents for free by visiting EDGAR on the SEC website at sec.gov or by visiting spdrgoldshares.com. Alternatively, the Funds or any authorized participant will arrange to send you the prospectus if you request it by calling 866.320.4053.

None of the Funds is an investment company registered under the Investment Company Act of 1940 (the "1940 Act"). As a result, shareholders of each Fund do not have the protections associated with ownership of shares in an investment company registered under the 1940 Act. GLD and GLDM are not subject to regulation under the Commodity Exchange Act of 1936 (the "CEA"). As a result, shareholders of each of GLD and GLDM do not have the protections afforded by the CEA.

The values of GLD shares and GLDM shares relate directly to the value of the gold held by each Fund (less its expenses), respectively. Fluctuations in the price of gold could materially and adversely affect an investment in the shares. The price received upon the sale of the shares, which trade at market price, may be more or less than the value of the gold represented by them.

None of the Funds generate any income, and as each Fund regularly sells gold to pay for its ongoing expenses, the amount of gold represented by each Fund share will decline over time to that extent.

The World Gold Council name and logo are a registered trademark and used with the permission of the World Gold Council pursuant to a license agreement. The World Gold Council is not responsible for the content of, and is not liable for the use of or reliance on, this material. World Gold Council is an affiliate of the Sponsor of each of GLD and GLDM.

GLD® is a registered trademark of World Gold Trust Services, LLC used with the permission of World Gold Trust Services, LLC. MiniSharesSM and GLDMSM are service marks of WGC USA Asset Management Company, LLC used with the permission of WGC USA Asset Management Company, LLC.

For more information, please contact the Marketing Agent for GLD and GLDM. State Street Global Advisors Funds Distributors, LLC, One Iron Street, Boston, MA, 02210; T: +1 866 320 4053 spdrgoldshares.com