Industry Updates

BlackRock lists a new actively managed hybrid gold ETF

David Tuckwell

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Today's new ETF listings from around the world.


Actively managed hybridgold ETF from iShares

It's almost as if they're trying to time the market. Right in time for the potential bear market iShares is rolling out a


tracker, that appears to be the first of its kind. The iShares


Exposure ETF (GLDF) will seek to provide total return exposure to


, while partly avoiding the ETC structure that's usually used for total return



To do this, GLDF will invest in two things:

1. A physically-backed gold ETP;

2. Derivatives that correlate with gold

In order to get a total return, GLDF "aims to generate interest income… through a cash management strategy consisting primarily of cash and cash equivalents," the prospectus says. This strategy and the derivatives exposure (mostly gold futures) will be actively managed.

Interestingly, GLDF does not have to invest in BlackRock's ETPs. The prospectus says it can invest in products issued "by an unaffiliated entity". But one imagines BlackRock will stick with its own IAU product (why bring in assets only to bleed them?).

Analysis - Physically backed gold might be better


ETPs fall into two categories: those that hold bullion (physically backed) and those that use


futures contracts. Physically backed


products are the overwhelming favourite among investors and for an obvious reason: they're pretty much perfect.

Physically backed gold ETPs are guaranteed to track their underlying because they have a legal claim to allocated bullion. And because they're stored with bank custodians there is very little security risk. Making things better, in a worst-case scenario, investors can request the delivery of gold bars for some products.

So foolproof are physically backed gold ETPs that they're popular all around the world - even in sub-Saharan African countries where they have very little exchange activity, small capital markets and virtually no ETFs to speak of.

BlackRock knows all this, of course. It's physically backed gold tracker IAU has several billion under management. Which raises the obvious question: why are they listing a gold tracker that builds in derivatives?

One suspects this owes partly to performance. Tracking gold on a total return basis can at times lead to better (in effect, leveraged) returns. This is more or less said outright in GLDF's shiny new prospectus: "Investing in derivative contracts may have a leveraging effect on the Fund."

And a product that offers enhanced commodity exposure may be appealing to investors as the decade-long bull market finally winds down.

But it also has drawbacks. One is contango, which is a permanent feature of the gold futures market owing to storage costs. And while BlackRock may actively manage futures rolls, active management will not flip the curve. Another is counterparty risk - derivatives have counterparties that can default, physical gold does not. In fact, a large part of the reason investors like gold is precisely the fact that there is no credit risk.

Still, it will be interesting to see how iShares new hybrid goes.

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