Most exchange-traded commodities (ETC) track futures prices but, unlike them, ETFS Physical Gold actually holds the physical metal gold bars. This means it does not risk considerably underperforming the spot price. The fund is also not subject to swap counterparty risk, as synthetic ETCs and exchange-traded funds (ETFs) are.
But the fees and costs that ETFS Physical Gold charges mean it will still slightly under perform the gold spot price, though its tracking error is under 1 per cent over the past three years.
ETFS Physical Gold's bars of gold are held by a third-party custodian, HSBC Bank, and investors can check to see what gold bars it currently has via the ETF Securities' website. If HSBC went bankrupt, the issuer would take control of the metal, and if ETF Securities became bankrupt then the trustee and an administrator would take control of the gold bars. This should have no effect on the value of ETFS Physical Gold as it is ring-fenced from ETF Securities.
Each unit in the fund has an effective entitlement to gold (ETF Securities lists the gold bars that back the fund on its website), so investors have recourse to the physical underlying asset. This was put to the test in August 2010 when fund manager Sebastian Lyon of Troy Asset Management asked for his gold entitlement to be delivered, which it duly was. (Click here to read more).
Although the securities of the Sterling share class, PHGP, are traded in pence, foreign-exchange risk is not totally eliminated. Gold is dominated in US dollars and converted into pence using the public exchange rate, so the daily return in sterling is not likely to match that in US dollars.
You can also buy the ETFS Physical Gold PHAU, which is the US dollar share class.
Although the fund is domiciled in Dublin, it has UK distributor status, which means when you sell your units you will incur capital gains tax of 18 per cent or 28 per cent on any profit, rather than income tax, the top rate of which is 50 per cent.
ETFS PHYSICAL GOLD £ (PHGP) | |||
|---|---|---|---|
| PRICE | 9097p | 6 MONTH NAV PERFORMANCE | 6.55% |
| NET ASSET VALUE | 9225p | 1 YEAR NAV PERFORMANCE | 21.53% |
| LAUNCH DATE | April 1997 | 3 YEAR NAV PERFORMANCE | 58.72% |
| REPLICATION METHOD | physical | MANAGEMENT FEE | 0.39% |
| BASE CURRENCY | US dollars | YIELD | 0% |
| 3YR TRACKING ERROR | -0.62% | MORE DETAILS | www.etfsecurities.com |
Source: ETF Securities.
Performance data as at 1 July 2011
Gold spot price
