Market Overview

How To Get Gold And Income In One ETF


Gold and the related exchange traded funds are among this year's best-performing assets. There's just one problem: scorching hot gold ETFs don't offer dividends or interest payments.

What Happened

That means investors are betting solely on capital appreciation with bullion and gold ETFs. However, there's an avenue for investors looking to participate in some of the upside offered by the yellow while generating income: the Direxion Flight to Safety Strategy ETF (NYSE: FLYT).

FLYT debuted earlier this year in what was a prime example of a well-timed launch, coming to market just before the coronavirus March meltdown. While it extols the virtue of safety, FLYT remains relevant even as equities flirt with record highs.

Why It's Important

FLYT follows the Solactive Flight to Safety Index, providing exposure to gold, long-dated Treasuries and utilities stocks. The fund's gold allocation is capped at 22.5% while the Treasuries with maturities of 20 years and longer and utilities combine for the rest of FLYT's roster.

The least volatile of Treasuries and utilities, based on trailing five-year volatility, commands the larger percentage in FLYT.

In other words, FLYT isn't designed to be exciting, but with no yield on gold and with the ICE U.S. Treasury 20+ Year Bond Index yielding just 1.75%, FLYT's 28% weight to the high-yielding utilities sector is appealing for income investors. The S&P 500 Utilities Index currently sports a dividend yield of 3.45%.

What's Next

FLYT's yield “augment” via Treasuries, sort of, and certainly utilities is important in the current climate because betting against gold, particularly with the dollar sliding, appears foolhardy.

“Debt levels in the US have risen dramatically as the Treasury and the Fed have sought to mitigate the impact of the pandemic, so the US dollar may weaken further,” according to State Street. “This, coupled with growing concerns about the potential for inflation as a result of the unconventional measures, could provide ongoing support for investment and perceived safe-haven demand in the US. In the face of growing uncertainty about the outlook for the US dollar, emerging market central banks may increase their purchases of gold for official reserves.”

Said another way, FLYT could take flight because of gold while compensating investors with utilities yields.


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Posted-In: Long Ideas News Bonds Specialty ETFs Commodities Markets Trading Ideas ETFs

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