Investing & Unintended Consequences

Long gold stocks = long bonds, long banks = short bonds?

March 2023 Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Simple equity ETFs often have exposures to other asset classes
  • Gold stocks are bond proxies & growth stocks are short commodities
  • Investors may have unintended bets in their portfolios


ETFs used to be like surgical instruments. StateStreet’s SPY tracks the stocks of the S&P 500, iShares’ AGG the universe of US investment-grade bonds, and so on. Investors knew exactly what they were getting to create simple and precise portfolios.

However, as the ETF universe exploded with products for every imaginable niche, the risk exposures have become less clear. For example, the ARKK Innovation ETF (ARKK), which represents a concentrated portfolio of growth stocks, has a beta of 1.7 to equities, 0.6 to bonds, and -0.5 to the US Dollar index. Stated differently, the ETF provides leveraged exposure to the US stock market, positive exposure to US bonds, and is short the USD. It is doubtful that investors are aware of getting such a hodgepodge of asset class exposures when allocating to this growth-oriented product (read Growth ETFs: Performance & Factor Exposures).

In this research article, we will explore some of the unintended risk exposure of equity ETFs.


We define our universe as all ETFs traded in the US that are classified as equity or alternative ETFs. We exclude bond, short, and leveraged products and require a five-year track record, which reduces the number of ETFs to approximately 1,000. We then run a regression for each of these ETFs using US equities, US investment-grade bonds, commodities, and the US Dollar (USD) index as independent variables.

First, we rank the universe of ETFs and select the top and bottom 10 ETFs based on their factor betas from the regression analysis. We observe that the ETFs with the highest betas to equities are primarily thematic and sector products. Five out of ten provide exposure to the semiconductor industry, which has outperformed the S&P 500 significantly since 2020 given the reduced supply of chips due to COVID-19-related production issues.