How Did the Stores of Value Hold Up during the Turbulent First Quarter?

When ProShares launched BITO, the Bitcoin Futures Strategy ETF last autumn, the ETF along with Bitcoin were promoted as “stores of value.”  The rationale was that Bitcoin was independent of stock markets and would provide diversification away from equities and tend to rise when equity markets fell.

Unconvinced, I wrote a column at that time entitled “Beware of BITO.”  I had two major reasons:

  1. Bitcoin had not been a major alternative asset with the history of gold or commodity pools. Both are time-tested stores of value that have historically prospered in prolonged and significant equity market downturns.
  2. BITO does not hold “spot” Bitcoin. It holds Bitcoin Futures. Many investors have become angry in the past after incurring losses on ETFs that hold futures. Oftentimes, investors do not understand the mathematical implications of market futures compounding and/or did not understand the rolling risks of contango and backwardation. In my opinion, ETFs that buy and sell 30-day futures daily are excellent trading tools but are not suitable for buy-and-hold investors. 
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Fast forward to today and we are closing in on the end of a very turbulent quarter for stock markets.  It has been precisely the type of quarter that diversification from core equity holdings into true stores of value would have mitigated losses.  In this column, we take a look at ETFs with exposures to gold and commodity pools relative to BITO, the Bloomberg Bond Aggregate and the S&P 500 Index.  Most of the data below was sourced from reports.

The analysis includes:

GLD, SPDR Gold Trust – GLD uses a “pass-through” grantor trust structure to attempt to track the gold spot price, less expenses and liabilities, using gold bars held in London vaults.  When sold, its capital gains are taxed at a higher “collectibles” rate, not the capital gains rate used on true ETFs holding securities using the fund structure governed by the Securities Act of 1940.  GLD is the oldest and by far the most expensive of the five exchange-traded grantor trusts holding gold. IAUM from iShares has the lowest expense ratio (0.15% vs. 0.40%) and BAR from Granite Shares posting the highest net-of-fee returns. GLD is used for this study because it has the longest history.

GSG, iShares S&P GSCI Commodity Indexed Trust – GSG is a commodity pool tracking a version of the S&P GSCI., giving it fairly neutral exposure to the broad energy commodities market. Instead of holding contracts in the underlying commodities, GSG only holds long-dated contracts on the GSCI itself, as well as sometimes quite substantial cash and T-Bill assets. These commodities are weighted by reference to world production statistics and liquidity requirements. As a commodity pool, GSG reports any cap gains marked to market on a K-1 at a blended rate.  Currently, the 5 largest sector exposures are: Energy (55%); Agriculture (19%); Industrial Metals (10%); Livestock (10%) and Precious Metals (5%).

GDX, Van Eck Gold Miners ETF – GDX is a true ETF using the exchange-traded version of the 1940 Act structure that holds the stocks of companies in the gold mining industry.  It tracks a market-cap-weighted index of global gold-mining firms. 

GUNR, FlexShares Morningstar Global Upstream Natural Resources Index Fund – GUNR is a true ETF using the exchange-traded version of the 1940 Act structure.   It tracks an index of global companies that operate, manage, or produce natural resources in energy, agriculture, metals, timber or water, thus providing exposure in traditional natural resources industries. Notably, GUNR extends its coverage to include ‘upstream’ businesses like containers and packaging, commercial services, and paper and forest products. To curate the portfolio, the fund’s underlying index selects 120 stocks using a proprietary methodology. It then caps weightings at the regional and sector level, minimizing the impact of firms of more popular names in the portfolio. Overall, GUNR has a broad and diverse take on a market that lends itself to concentration. The index is reconstituted semi-annually and rebalanced quarterly

BITO, ProShares Bitcoin Strategy ETF – BITO actively manages a portfolio of front-month CME bitcoin futures.  The fund will invest in cash settled, front-month bitcoin futures, traded on commodity exchanges registered with the Commodity Futures Trading Commission (CFTC), such as the CME Futures Exchange. The value of bitcoin futures is determined by the CME Group and Crypto Facilities Bitcoin Reference Rate (CME CF BRR), which aggregates bitcoin trading activity across major global bitcoin spot trading venues during a one-hour window. The one-hour window is divided equally into twelve 5-minute segments.  It uses a fund structure that gains its exposures through a wholly owned Cayman Island subsidiary. It will only qualify for 1940-Act fund tax treatment if it derives at least 90% of its gross income for each taxable year from “qualifying income,” meet certain asset diversification tests at the end of each taxable quarter, and meet annual distribution requirements.

AGG, iShares Core U.S. Aggregate Bond ETF – AGG tracks an index of US investment-grade bonds. The market-weighted index includes Treasuries, agencies, CMBS, ABS and investment-grade corporates. 

SPY, SPDR S&P 500 ETF Trust – SPY tracks the S&P 500, a market-cap-weighted index of US large- and midcap stocks selected by the S&P Committee and the benchmark most widely used by mutual fund companies and institutions to represent the performance of the US Stock Market.  As discussed in prior columns, its antiquated Unit Investment Trust structure paired with a higher management fee makes SPY an inferior choice to Vanguard’s VOO or iShares IVV for buying core S&P 500 exposure. Nevertheless, it’s used here as it has the longest history for comparative purposes.  

Current ValuEngine reports on these ETF’s can be viewed HERE

Until this year, the returns of the S&P 500 were so strong that there were only two pronounced negative four-month periods since 2003.  To capture downturn behavior, we included profiles from Sep. 1 – Dec. 31, 2008 and Sep. 1 – Dec. 31, 2018.  


Start Date Nov-04 Jul-06 May-06 Sep-11 Oct-21 Sep-03 Jan-1993
YTD NAV  +6.4% +43.5% +20.6% +20.2% -8.4% -5.8% -6.2%
1-Yr. NAV  +12.4% +78.3% +21.3% +22.2% N/A -4.3% +15.5%
Historic 3-Yr Ann. NAV   +13.6% +15.4% +20.4% +13.3% N/A +1.8% +18.6%
Historic 5-Yr Ann. NAV  +8.9% +11.2% +11.9% +10.1% N/A +2.2% +15.7%
Historic 10-Yr Ann. NAV  +1.2% -3.7% -1.7% +4.5% N/A +2.2% +14.5%
2018 Sep thru Dec. +10.6% -16.1% +23.2% -3.5% N/A +3.3% -6.2%
2008 Sep thru Dec. +7.3% -52.3% +1.3% N/A N/A +5.7% -27.6%
Std. Dev. 15.3 29.2 36.6 22.3 N/A 3.8 15.9
Beta 0.07 1.62 0.93 1.10 N/A 1.00 1.00
# of Holdings 2 20 59 112 N/A 10,027 500
Div. Yield 0.0% 0.0% 1.6% 3.3% 0.0% 1.7% 1.4%
Expense Ratio 0.40% 0.75% 0.51% 0.46% 0.95% 0.04% 0.09%
Assets (AUM) $68 Billion $2 Billion $16 Billion $8.1 Billion $1.2 Billion $88 Billion $406 Billion
Structure Grantor Trust / Bullion in Vault Grantor Trust/ GSCI Index Futures Commodities Pool  Indexed Stocks Indexed Stocks Fund-owned Cayman Subsid. / Actively Trades Bitcoin Futures Indexed Bonds Indexed Stocks
ETF Sponsor SPDR/


iShares Van Eck Global Flex Shares ProShares iShares/ Blackrock SPDR/ SSgA 
All of the approximately 5,000 stocks, 16 sector groups, 140 industries, and 500 ETFs have been updated on
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  1. In the short time it has been in existence, nothing about BITO’s price history in general or on days, weeks or months when SPY declines suggest to me that it is a store of value.  In the market decline this year, BITO’s return has been worse than the market and all of the other ETFs profiled here that are bought by investors as hedges against equity declines. To compound the volatility problem, BITO pays no dividends and thus gives investors no cushion against declines.  What about spot Bitcoin as a diversifier? The Coinbase Bitcoin Index history started in 2014.  Since that time, there has only been one significant downturn period for the S&P 500 until this year other than the six weeks of the pandemic in 2020.  That was September 1 through December 31, 2018.  In that period, the S&P 500 Index was down 6.2% and the Coinbase Bitcoin Spot Index was down 10.5%.  As detailed earlier, I consider the BITO ETF to be a useful short-term trading tool for professional traders, not suitable for most buy-and-hold investors.  There also may be yet-to-be-resolved tax issues for certain classes of investors. Another deterrent to holding BITO as a supposed “store of value” is its whopping 0.95% expense ratio, higher than any of its alternatives. 
  2. GLG has been a rockstar in 2022 thus far and even more so during the past 12 months.  More than half of the weight of the futures held by GLG represent the energy sector.  Financial instruments tied to energy instruments have done well during some other stock market downturns such as 1974.  However, GLG  is extremely volatile and was the worst performer by far among these “stores of value” in both the 2018 and the 2008 downturns. The tremendous weighting toward oil has led some institutions to seek products tied to more evenly weighted commodities futures.  GLG owners must also use IRS form K-1, frequently complicating tax preparations and higher taxes paid.
  3. GLD, SPDR Gold Trust, started trading in 2004 and provided strong supporting evidence since then on gold bullion as a store of value when the S&P 500 is in decline. It’s the only one of the alternatives listed here to rise by at least 6% in all three S&P 500 declines.  Moreover, because it does track bullion so reliably and sites such as track gold spot prices annually going back to 1969, it is easy to see that gold bullion performed splendidly as a store of value during the pronounced declines of 2000-2002, 1978-9 and 1974-5. Taking the calculations back to 1969 through YTD 2022, a 10% allocation to gold each year would have lowered total return by an annualized 0.72% per year but lowered the overall standard deviation of the S&P 500 for that period from 17.3 to 13.4 for the 90-10 allocation.  If drawdowns are as much of a consideration as overall growth, a steady 10% allocation to gold bullion can mitigate losses.  It will, however, lessen gains in robust growth periods.  If buying exchange-traded shares holding bullion, I’d recommend considering BAR (which I own) or IAUM rather than AUM leader GLD due to fee and subtle structural differentials.  One other deterrent is the fact that all of these pass-through-for-taxation-purposes grantor trusts require a K-1 because gold is taxed as a collectible and not an ordinary capital gain.
  4. The remaining exchange-traded products discussed here are true ETFs that buy and sell stocks or bonds in the 1940 Act structure using the exchange-traded option.  These can and do use the tax-advantageous features of the ETF structure and when shares are sold, they are taxed as ordinary capital gains. Continuing down the list:
  5. GDX, Van Eck Gold Miners ETF, has provided returns as robust in most periods as GLD with the better structure for taxable investors. Keep in mind, however, that GDX is not nearly as correlated to the spot price of gold as GLD is.  No matter how close the relationship of an operating company is to a commodity, there are still other factors beyond the commodity that may affect share price. That being said, GDX has had stellar performance recently, even outperforming SPY as well as GLD for the 3-year annualized period ending today, something not many non-leveraged ETFs have been able to accomplish.  This ETF has been around since 2006 and did well, although not as well as GLD, in the 2008 financial crisis.  On the other hand, it held up even better than GLD in the tariff-inspired downturn.  GDX is more than twice as volatile as GLD with a whopping 36% per year standard deviation and 50% more of a decline than GLD during the 2010 – 2015 period. On the other hand, GDX provides a 1.6% dividend yield, something to cushion its fall a bit during declines.  That is slightly higher than the yield of the S&P 500.  The sponsor is Van Eck Global, the ETF provider that has been managing mutual funds and accounts using gold mining company stocks for more than 50 years, something no other provider can say.  Although the 51-basis point fee for an index that represents a single global industry is slightly high, investors may find the comfort of this expertise to be worth it.  I’d rate GDX as another option to consider as a store of value to mitigate overall drawdowns caused by equity declines.
  6. GUNR, FlexShares Morningstar Global Upstream Natural Resources Index Fund, is a very interesting alternative to GSG. It is highly diversified with a very well-constructed, if complex, index.  Energy is its biggest sector but has less than half the weight it does in GSG.  The operating companies involved in all of its commodities tend to be a bit less correlated to the underlying commodities they process than the tighter relationship that the gold mining companies in GDX.  Nevertheless, it has delivered solid performance throughout the entire 10-year-boom for the S&P 500 relative to the other ETFs analyzed here. Its 45-basis point fee, 30-basis points lower than GSG, seems very reasonable for the exposures it delivers.  I’ll admit that I had no idea that GUNR had more than $1 billion in assets, let alone more than $6 billion since its 2011 inception.  Another bonus in buying GUNR now is a very attractive 3.3% dividend yield, just about double that of AGG. That constitutes a generous cushion against potential declines. The downside relative to GDX and GLD is that GUNR failed to mitigate against the SPY 2018 tariff-war decline and given its methodology, it probably would have also suffered a small decline during the 2018 Financial Crisis.  Still, if you wish to diversify from equity exposure to another exposure with different sensitivities, GUNR seems to be preferential in many ways to GSG.
  7. Given the current yield curve structure, it is not difficult to understand why AGG did not provide diversification benefits during the year-to-date S&P 500 decline.  Historically, however, it has held up quite well and its decline that has been almost the same as SPY in 2022 is far from disastrous in magnitude.  AGG’s dividend yield of 1.7% also mitigates against the magnitude of future drawdowns.  The interesting feature of bond funds is that as the fund price decreases, income yields increase. This is why it is very rare for a bond fund to suffer a negative total return for compound periods greater than 5 years.  The relatively tiny annual standard deviation of AGG also speaks to its stability as a perennial store of value.

In summary, the most important part of this analysis is that I found no evidence to support popular assertions that BITO or its other Bitcoin Futures Strategy ETF cousins should be considered stores of value to mitigate overall wealth against equity declines.  Although it has been a superior performance in recent years, I also find little to recommend the purchase of GSG, the commodities-pool exchange traded product by iShares in this pursuit.  Gold bullion has continued to demonstrate its historically robust performance as a store of value.  However, there are few rational reasons for buy-and-hold investors to pay more than 2.5 times the fee of IAUM (15 bp) for GLD (40 bp).  That said, GDX which owns the stocks of gold mining companies, and GUNR which owns companies involved in producing upstream commodities, have delivered comparable performance histories with better tax treatment than GLD.  

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Finally, we come to the much-maligned AGG.  Some mutual fund strategists have been fighting for the podium in a rush to tell long-term investors to dump all their bonds.  I respectfully demur. It is true that the currently inverted yield curve has greatly increased  bond duration risks resulting in the likelihood that bond fund prices are likely to continue to decline for some time.  Although eventually the income yields of these funds will increase, that will take some time meaning the pain will continue.  However, eventually the current situation will change and historically managers have done a terrible job of timing such change.  My take on the situation is that it is fine and probably preferable to reduce a 60-40 allocation to bonds to 50-30-20 with 20 being allocated to alternatives such as GDX and GUNR.  This will mitigate against drawdowns with a digestible opportunity cost when the S&P 500 inevitably emerges from its decline.  That said, I would not liquidate my entire allocation to bonds.  From a long-term stability perspective, bond allocations continue to serve the purpose.  

By Herbert Blank

Senior Quantitative Analyst, ValuEngine Inc


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