Viktorija Stasytytė

Institute of Dynamic Management,

Vilnius Gediminas Technical University,

Lithuania

viktorija.stasytyte@vilniustech.lt

ORCID 0000-0003-3451-9233

Hedging basic materials equity portfolios using gold futures

Nijolė Maknickienė

Department of Financial Engineering,

Vilnius Gediminas Technical University,

Lithuania

nijole.maknickiene@vilniustech.lt

ORCID 0000-0003-2785-5183

Raimonda Martinkutė-Kaulienė

Department of Financial Engineering,

Vilnius Gediminas Technical University,

Lithuania

raimonda.martinkute-kauliene@vilniustech.lt

ORCID 0000-0003-4231-5003

Abstract. Commodities can be treated as an alternative investment, a hedging strategy, or a diversification opportunity. Various types of commodities, especially metals, usually are not strongly affected by inflation, and the trends of their prices are not correlated with other investment instruments. To participate in the metals area of the commodity market, an investor can buy shares of companies from the basic materials sector. Such companies are involved in discovering, developing, and processing raw materials. However, as not all the companies from the basic materials sector deal with precious metals, it is worth adding gold futures to such a portfolio. The aim of this paper is to compare a portfolio of the basic materials sector stocks against a similar portfolio hedged with gold. Our findings revealed that hedging a commodities’ portfolio with gold minimizes both profits and losses and can be suitable for risk-averse investors. The research results can be applied by individual investors and investment managers to choose the most appropriate investment approach.

Received: January, 2024

1st Revision: June, 2024

Accepted: June, 2024

DOI: 10.14254/2071-8330.2024/17-2/7

JEL Classification: G11, G17

Keywords: investment, portfolio insurance, basic materials, gold, commodities, futures