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BSE launches Gold Hedged Index

New index is expected to protect investors from a volatile rupee and not exactly a stock market fall

Published: Apr 26, 2016 05:17:31 PM IST
Updated: Apr 26, 2016 05:36:07 PM IST
BSE launches Gold Hedged Index
Image: Shailesh Andrade / Reuters
Asia Index, a joint venture between S&P Dow Jones Indices and BSE

At a time when investing in gold is completely going out of fashion, Asia Index, a joint venture between S&P Dow Jones Indices and BSE, launched an index which is a combination of equities and gold.

Aptly named, the S&P BSE Sensex Gold Hedged Index and S&P Dynamic Gold Hedged Index is created with an idea to hedge against a falling rupee than a falling market itself. The hedged index is designed to create a strategy which is long the S&P BSE Sensex and hedged against changes in the Indian rupee versus gold.

“This is one index that we are launching almost simultaneously in the USA and India. The idea is to create new products for investors across countries. Both Gold and Equity have a low correlation with each other and that is something that will help investors across both the countries”, said Alka Banerjee, CEO – Asia Index Private Ltd.

Over the last ten years, both gold and equity have given positive returns at 13 percent and 10 percent respectively, and the correlation between the two asset classes over the last ten years is at a -0.0407, which is considered to be significant to create a hedged index. According to the calculations of Asia Index, the Gold Hedged index has given a return of 19.7 percent over the last ten years showing that the hedged strategy has worked consistently in the past.

While the equity aspect of the index will work with the 30 index stocks of the BSE, gold will be overlaid as a long position in MCX Gold Mini futures. So if you have Rs 100 worth of Sensex, then there will be a Rs 100 worth of gold futures as part of the index. The Gold Hedged index will be rebalanced monthly during the one-day roll of the gold futures and the Dynamic Gold Hedged Index is rebalanced monthly during the five-day roll of the gold futures contracts.

Over the last four years , Asia Index has created many indexes for the Indian market based on investment strategies that are time tested. These indexes are also called smart beta indexes that imitate strategies of smart investors.

Index investing and smart beta indexing is not a very popular strategy in India. But with increasing efficiency of markets, these products are expected to become popular over a period of time. S&P Dow Jones indices are at the forefront on creating indexes that can be eventually converted into low cost index funds or exchange traded funds.

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