ETF Securities, a leading provider of commodity-related exchange-traded products (ETPs), has unveiled a couple of new products offering currency-hedged access to gold. The new products give sterling and euro-denominated investors direct exposure to physical gold, whilst mitigating the effects of currency volatility by reducing exposure to the US dollar, the currency in which gold is priced.
ETF Securities has unveiled a pair of exchange-traded products providing sterling and euro-hedged exposure to physical gold.
The new products are the ETFS GBP Daily Hedged Physical Gold (GBSP), which is aimed at sterling-denominated investors and has been listed on the London Stock Exchange, and the ETFS EUR Daily Hedged Physical Gold (03V1), which is aimed at euro-denominated investors and is set to launch on the Deutsche Börse (Xetra) later this week, followed eventually by a listing on Borsa Italiana.
The products are linked to the performance of the Morgan Stanley Long Gold British Pound Hedged Index and the Morgan Stanley Long Gold Euro Hedged Index, respectively, which are calculated and published by Morgan Stanley. These indices aim to reflect the hedging of foreign exchange risk with respect to GBP and EUR.
By allowing investors to hedge the currency of their asset returns into those of their home country liabilities, currency-hedged products help offset the natural currency risk to which an investor in non-local currency assets is exposed. This is particularly useful for investors with specific local currency return mandates.
Neil Jamieson, Head of UK & Ireland at ETF Securities, said: “Investors buying commodities that do not trade in their home currency are naturally exposed to currency risk. ETFS GBP Daily Hedged Physical Gold helps to remove that risk for GBP investors.” Similarly, the euro-hedged version does the same for eurozone-based investors.
Currency hedged products also provide shorter-term tactical investors with the ability to potentially increase their returns by choosing the currency of their exposure – essentially adding a currency dimension to the trade.
An additional benefit of these daily hedged products is the frequency at which the swaps are reset. A product which tracks an index that hedges currency risk on a daily basis will tend to be more accurate in providing returns that reflect true underlying asset returns than those that hedge on a monthly basis or only reset the swaps on a monthly basis.
Despite being down year to date, gold remains a core holding for investors concerned about potential market turmoil, such as the possibility of sovereign debt risk events in Europe and the US. Uncertainty surrounding the safety of bank deposits in Cyprus has further added to the allure of the yellow precious metal. However, with various economies in a parlous position and central banks undertaking aggressive monetary easing policies, foreign exchange markets are in a state of flux. This adds a layer of volatility and uncertainty to non USD-based investors in gold. Currency hedging addresses this risk.
Matt Johnson, Head of Distribution for EMEA at ETF Securities, says: “There are many sterling and euro-based investors who wish to hedge out currency risk. As witnessed following the recent G20 meeting and various central bank announcements, monetary policy has the potential to cause significant currency movements. Our currency-hedged physical gold investment products provide a transparent and cost-efficient exposure to physical gold whilst mitigating unwanted currency exposure.”
ETF Securities listed the world’s first exchange-traded gold product in 2003 and today more than $18 billion of the firm’s assets reside in products that track the spot price of gold. These latest products complement the firm’s existing line-up, which includes the flagship ETFS Physical Gold and Gold Bullion Securities products.
The new products charge an annual management fee of 0.39% and a hedging fee of 0.16%. Known as exchange-traded commodities (ETCs), they are structured as open-ended exchange-traded debt obligations fully backed by physical gold held by JP Morgan Chase Bank, the custodian. Only metal that conforms with London Bullion Market Association (LBMA) rules for Good Delivery can be accepted by the custodian. Each physical bar is segregated, individually identified and allocated.