GTU Is The Ideal PP ETF

[Ad Orientem]

Isn't the bond component the least volatile (by far) of the three non-cash assets?

Maybe or maybe not. Exact parity in volatility is not possible. The objective is to not grossly overweight one asset. And I would note that LTTs pretty much did what they were supposed to during the shit storm of 2008-09.

OK, thanks for playing.  Here's your certificate of completion.

Is it suitable for framing? 

[Libertarian666]

GTU is an attractive way to speculate in gold, but as I have said ad infinitum, it really is not appropriate for a PP. It does not track the price of gold because it's a closed ended fund and is subject to all sorts of swings in discount/premium often exacerbated by investor sentiment. Thus it can skew your PP and cause you to rebalance at inappropriate times.

Stick to physical or, if you must, an ETF for your PP and use the closed ended funds for your VP.

How would buying when investor sentiment is low and selling when investor sentiment is high be rebalancing at "inappropriate times"

Because you are not using gold for the fourth asset in your PP. You are using gold on steroids, which can cause you to buy or sell some of the other assets before their time. You are adding a level of volatility that is sufficiently greater than the other assets such that it could significantly skew your PP's performance.

EDIT: It's a bit like substituting EDV for your LTTs.

What if you sell GTU and buy SGOL (for example) on a premium increase for GTU and split up the difference among the other assets? I haven't run the numbers but it's hard for me to believe that would be a significant event in terms of rebalancing.

[Ad Orientem]

How would buying when investor sentiment is low and selling when investor sentiment is high be rebalancing at "inappropriate times"

Because you are not using gold for the fourth asset in your PP. You are using gold on steroids, which can cause you to buy or sell some of the other assets before their time. You are adding a level of volatility that is sufficiently greater than the other assets such that it could significantly skew your PP's performance.

EDIT: It's a bit like substituting EDV for your LTTs.

What if you sell GTU and buy SGOL (for example) on a premium increase for GTU and split up the difference among the other assets? I haven't run the numbers but it's hard for me to believe that would be a significant event in terms of rebalancing.

I haven't run the numbers either but I am a big believer in the KISS rule. Don't make things more complicated than they need to be. Is this something that is likely to significantly improve the long term returns of the PP in any of the various economic conditions? If not, then why do it?

Again I want to stress that I don't hate GTU. I just think it belongs in the VP.

[Sam Brazil]

Why would 1.5x gold leverage be good for your PP? Unless you also leverage all the other assets by 1.5x, you're now over invested in gold, which defeats the purpose of the PP, which is to be balanced. Even worse, gold is already the most volatile asset, but HB still decided to give it equal weight in the PP for simplicity, so youre compounding an existing potential problem.

[MachineGhost]

No I would not. The PP is predicated on a roughly comparable level of volatility among the three non-cash assets. If one asset becomes vastly more volatile than the others, you are going to get an unbalanced portfolio.

I wish that was literally true, but it depends on how you look at risk parity.  I think fundamentally the PP relies on anti-correlation, not any technical risk parity approach.

[Mike59]

I say this from experience last year averaging in on GTU and seeing the discount keep getting lower and lower. Per my thread a few weeks ago, I managed to buy more at the bottom by luck when my paychecks became investable, and the position is up 20% YTD, I may end up rebalancing out of gold earlier than anticipated (started my PP only last year)

For me the bottom line is that GTU provides a gamble, it *may return a higher capital gain *if one buys low at the right discount and rebalances out at a premium. There is a risk that if sentiment drops into the abyss (such as $700 gold and miner wipeouts) , we could see -15%, and as low as -25% below NAV (which happened to CEF years ago if I recall correctly). It takes a tough stomach at -25% below NAV if you averaged in at -10% thinking you were getting a good deal (while GLD sits rock steady at par to its share value).

To maintain the KISS principle as echoed earlier, I partially utilize GTU for geographic diversification and split my gold 50/50 between GTU and ishares, I can't say I want ishares to have 100% of my gold holdings .

[Libertarian666]

Because you are not using gold for the fourth asset in your PP. You are using gold on steroids, which can cause you to buy or sell some of the other assets before their time. You are adding a level of volatility that is sufficiently greater than the other assets such that it could significantly skew your PP's performance.

EDIT: It's a bit like substituting EDV for your LTTs.

What if you sell GTU and buy SGOL (for example) on a premium increase for GTU and split up the difference among the other assets? I haven't run the numbers but it's hard for me to believe that would be a significant event in terms of rebalancing.

I haven't run the numbers either but I am a big believer in the KISS rule. Don't make things more complicated than they need to be. Is this something that is likely to significantly improve the long term returns of the PP in any of the various economic conditions? If not, then why do it?

Again I want to stress that I don't hate GTU. I just think it belongs in the VP.

If the premium/discount varies significantly, which it has done in the past, then it could add a noticeable amount to returns.
Just for discussion, suppose that you have a rule of buying when the discount on GTU is more than 6% and selling when it is less than 2%, and that happened every two years on average, and when buying GTU you sell SGOL and vice-versa. Then you could make an excess 2% a year on 25% of your portfolio, which is 0.5% a year, before trading costs of course, which I would think would be a lot less than that. I'd do a little extra work for that extra return.