ETF Securities, already a household name in the European ETF industry, is quickly becoming a major player in the ETF space here in the U.S. The London-based ETF sponsor announced today the launch of the ETFS Physical Swiss Gold Shares (SGOL), its second U.S.-listed ETF. The new offering is physically-backed by gold bullion held in secure vaults in Switzerland.
ETF Securities has established itself as a market leader in the European ETF market, with assets of more than $13 billion in over 130 products. The firm was behind the world’s first gold ETF in 2003 (in Australia and London) and the first crude oil ETF in 2005. Today, the company maintains a comprehensive line of commodity products, including precious and industrial metals, livestock, and agriculture funds. ETF Securities also offers leveraged and inverse leveraged ETFs in European markets.
Now the London-based firm is making a successful entry into the U.S. market, launching its second physically-backed commodity ETP in as many months. In late July, ETF Securities made its initial foray into the U.S. with the ETFS Silver Trust (SIVR).
Due in part to its competitive cost structure (SIVR has an expense ratio 20 basis points lower than iShares’ SLV), SIVR has been a huge success, exceeding the $100 million in assets mark in its first month of trading. [For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]
Timing Is Everything
The timing for the launch of the newest gold ETF is superb. As doubts about the staying power of the recent recovery have surfaced, investors have flocked to safe haven investments like gold and silver. SIVR has gained about 18% since its inception, and gold prices recently eclipsed the psychologically important $1,000 per ounce mark. Holdings in ETF Securities’ European gold ETFs have increased by more than 650,000 ounces in the last month, which translates into inflows into these funds of more than $650 million. To put that in perspective, the inflows over the last month are greater than the size of more than half of the ETFs currently offered in U.S. markets.
Similar to SIVR, the new ETFS Physical Swiss Gold Shares will rely in part on a competitive expense ratio to attract assets. But SGOL also differentiates itself from existing gold ETFs in a few ways. As the name of the fund implies, SGOL will custody all of its physical gold bullion in secure vaults in Zurich, Switzerland, offering valuable diversification benefits to investors. “If you want to invest in gold, currently the only ETF options are funds that house their gold in the U.S. or in the UK,” says William Rhind, Head of Sales and Marketing for ETFS Marketing. “The feedback that we’ve received from investors is that they would like to be able to hold their gold in Switzerland for a number of different reasons including diversification of geography, vault, custodian and issuer.”
The Swiss gold storage industry has a long and interesting history, dating back to the days of FDR. In April 1933, Roosevelt signed Executive Order 6102, which effectively required U.S. citizens to deliver most of their gold holdings to the Federal Reserve in return for a cash payment ($20.67 per troy ounce at the time). The limitation on gold ownership in the U.S. remained in place until 1974, but in the meantime Switzerland became a popular destination for bullion storage.
Some believe that a repeat of the 1933 gold confiscation is a real possibility, particularly if the dollar encounters continued weakness. While such a scenario is extremely unlikely, many “gold bugs” would no doubt sleep a bit easier knowing that their holdings are safe and secure in Switzerland. For investors with large gold holdings, diversification across countries makes sense as a risk reduction measure.
In addition, SGOL offers investors an opportunity to diversify their gold holdings across custodians. HSBC is the custodian for State Street’s GLD, while JP Morgan serves as the custodian for the new ETF Securities fund. Again, while any issues with a particular custodian are unlikely, investors with large gold holdings stand to benefit from diversifying their holdings. [see Free Report: Everything You Need To Know About Commodity ETFs]
|SGOL||ETFS Physical Swiss Gold Shares||0.39%|
|GLD||SPDR Gold Trust Profile||0.40%|
|IAU||iShares COMEX Gold Trust||0.40%|
|DGL||PowerShares DB Gold Fund||0.50%|
|UBG||E-TRACS UBS Bloomberg CMCI Gold ETN||0.30%|
ETFdb Pro members can learn more about all the options for investing in precious metals in our Precious Metals ETFdb Category Report (if you’re not a Pro member yet, you can sign up for a free trial or read more here).
SGOL becomes the third physically-backed gold ETF product available to U.S. investors. Other exchange-traded products offer exposure to gold prices through the use of futures contracts, but these funds tend to track spot prices less accurately and introduce investors to counterparty risk. Moreover, certain ETFs that rely on futures to track commodity prices have been the subject of intense scrutiny lately, and may face regulatory difficulties in the near future. While it’s unlikely that precious metals funds will be impacted (the proposed regulations may focus on oil and gas funds), it remains a possibility.
ETFs have become popular in part because of their transparency (particularly compared to actively managed mutual funds). And SGOL is no exception. The fund’s bullion holdings will be audited twice per year, and the bar identification numbers will be published on the company’s web site.
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Disclosure: No positions at time of writing.