Lyxor Asset Management has announced the launch of the Lyxor ETF MSCI ACWI Gold (GLDM), a new exchange-traded fund offering access to a global portfolio of gold mining and gold-related stocks. The ETF has been listed on the NYSE Euronext Paris and comes with a management fee of 0.50%.
Lyxor’s new fund provides a way to access gold via stocks whose returns have strong ties to the performance of physical gold.
The fund, which is based on a variation of the MSCI ACWI Gold Index, enables investors to gain exposure to the gold theme via mining companies whose fortunes are strongly tied to the price of the precious metal.
Investing in gold-related equities can provide a number of advantages over investing in physical gold. Although exposure to the metal is less direct, gold-related equities can offer the prospect of dividend income in addition to capital appreciation linked to increases in the gold price.
In the case of well managed companies, returns of gold mining stocks can also sometimes far exceed those of physical gold due to the effects of financial and operational gearing. At the same time, investors in gold equities continue to pick up much of the diversification benefit associated with investing in the precious metal itself.
In terms of the outlook for gold, recent extensions to quantitative easing (QE) programmes and continued accommodative monetary policies from the world’s major central banks should help to bolster the gold price. However, while previous episodes of QE boosted the gold price by around 30%, gains of that magnitude are not widely expected this time.
The outlook for gold mining stocks is potentially more robust. Since 2008, gold equities have lagged far behind the actual gold spot price. Continued strength in the gold price combined with a more favourable environment for equities generally could lead to a recovery in share prices of gold mining companies. If this scenario plays out, the new Lyxor fund would like outperform broad equity market funds.
The full name of the fund’s underlying index is the MSCI ACWI Gold with EM DR 18% Group Entity Capped Index. This index is made up of the constituents of the MSCI ACWI which are classified under the gold sub-industry of the Global Industry Classification Standard (GICS).
While the index universe consists of 24 developed and 21 emerging market countries, the index is dominated by companies from Canada, South Africa, Australia, the UK and the US. Companies are selected from the large and mid-cap size segment. Major holdings include Barrick Gold, Goldcorp, Newmont Mining, Newcrest Mining and AngloGold Ashanti.
To reduce index concentration, the maximum weight of a single constituent of the index is set at 18%. In the event a constituent has a weight greater than 18%, its weight is capped at 18% and the weight of other constituents is increased in proportion to their weight prior to such capping,
To ensure index liquidity, all constituents of the index universe which are classified as being situated in emerging markets are substituted with corresponding liquid Depositary Receipts (DR); either American Depositary Receipts (ADRs) listed on the New York Stock Exchange or Nasdaq, or Global Depositary Receipts (GDR) listed on the London Stock Exchange.
Commenting on the launch, Francois Millet, product line manager for ETFs at Lyxor, said: “The Lyxor ETF MSCI ACWI GOLD offers an alternative way to access physical gold via stocks whose returns have strong ties to gold performance. Lyxor has been working closely with MSCI for many years as one of our main index providers.”
Baer Pettit, head of MSCI’s index business, added: “We have had a close working relationship with Lyxor’s ETF business for almost 10 years, licensing a range of MSCI indices to them as they expanded their ETF offering. The licensing of this new index to Lyxor further extends that relationship, bringing the number of Lyxor ETFs based on MSCI indices to 49, more than any other index provider.”
The new fund will compete against a number of existing gold equities ETFs. These include the iShares S&P Commodity Producers Gold ETF (SPGP), which tracks the S&P Commodity Producers Gold Index; the ETFX DAXglobal Gold Mining ETF (AUCP), which tracks the DAXglobal Gold Miners Index; and the RBS Market Access NYSE Arca Gold BUGS Index ETF (GOLB), which tracks the NYSE Arca Gold BUGS Index. (All listed on the London Stock Exchange.)