IAU iShares Gold Trust

Given the performance of the market so far in 2014, it is pretty safe to say that this year won’t be as smooth as what investors saw in 2013. With this added volatility hanging in the background and fears over the taper, it could be a year to look once again at lower risk investments.

And with the performance of commodities lately, the demand for natural resources could be elevated, and particularly in the case of precious metals like gold. After all, gold saw a terrible 2013, but with sluggish stocks and worries over emerging markets, the metal has come back into focus (also see Inside 2013’s Best Gold ETF).

Gold ETFs have risen to start the year and hopes are again springing for a solid run for the important precious metal. And while investors have a number of ways to target gold with ETFs, a new lineup of gold funds from AdvisorShares could break this space wide open for investors who want to make a truly international play with their gold investment.

New Gold ETFs in Focus

AdvisorShares announced that it was releasing four new active gold ETFs, however, they have a twist. The funds will buy gold in foreign currencies allowing precious metal investors to diversify their holdings across currencies, and to help fight against U.S. dollar losses (See all the Currency ETFs here).

In essence, the funds will short currencies and buy gold, looking to give investors options to buy the precious metal in the most undervalued markets. Thus, investors who are bullish on gold can target their exposure in specific foreign currencies, thus making an even more targeted—and global—bet on the precious metal market.  

This novel approach will be taken with three currencies in particular, the British pound, the Japanese yen, and the euro. These currencies rank as the most liquid—after the dollar—and U.S. investors can now use them to buy gold in the following funds:

• AdvisorShares Gartman Gold/Yen ETF: GYEN
• AdvisorShares Gartman Gold/British Pound ETF: GGBP
• AdvisorShares Gartman Gold/Euro ETF: GEUR

All three of these new products look to charge investors 55 basis points a year in management fees, and then have 15 basis points a year in fees of ‘other expenses’. However, the group has a five basis point a year waiver, keeping the net expense ratio at 0.65%. The products will be structured as traditional ’40 Act funds, and thus will avoid K-1 issues and other tax headaches for investors, allowing them to be accounted for on a 1099.

All of the funds will obtain their currencies via exchange-traded futures, or using over the counter foreign exchange forward contracts.  The respective currencies will also be borrowed based on the yield curve in order to determine the most cost effective maturity at which to borrow euros to fund the gold purchases.

Investors should also note that Dennis Gartman, of the Gartman Letter fame, will also be lending his expertise to the funds. Gartman is well-known for his belief in cross trading of currencies and commodities, and obviously these funds allow the masses to apply this strategy to their own portfolios.

Beyond Gartman’s involvement, Treesdale Partners will be sub-advising the fund, a company that has a focus on managing currency and commodity-based alternative investment products for investors (see all the Broad Commodity ETFs here).

"Dennis Gartman's widely recognized analysis and commentary among leading corporate, financial and trading institutions is well-known, and we believe Treesdale adds another deeply experienced portfolio manager to the AdvisorShares active ETF suite," said Noah Hamman, chief executive officer of AdvisorShares in a press release. "We are pleased to partner with their combined expertise in bringing more innovative investment solutions to the active ETF marketplace."

Broad Play

Beyond these three, AdvisorShares also released a broad product that goes across a number of currencies, the AdvisorShares International Gold ETF: GLDE. This product will use a combination of GYEN, GGBP, and GEUR for its exposure, while it will also invest in some closed-end funds, underlying ETFs, ETNs, or other exchange-traded products in order to gain various types of exposure to the international gold market.

The fund will also be able to actively manage its exposure, so if for example, managers believe that gold is undervalued in euros, the product can shift its exposure to that currency. Investors have to pay for this exposure though, as the management fee comes in at 80 basis points a year, while the net expense ratio is at 1.52%, putting it at the very high end of the gold space, but in line with other active commodity products on the market (it also has a ’40 Act structure, eliminating the need for a K-1).

ETF Competition

These ETFs are first-of-their-kind to target the gold market with foreign currencies, while they are also the first to put an active twist on the gold ETF world. However, they are by no means the first gold ETFs to hit the market, as the space is already rife with competition (see all the Precious Metals ETFs).

The biggest funds in the space are the SPDR Gold Trust (GLD) and the iShares Gold Trust (IAU), which have, respectively, $32 billion and $6 billion in assets under management. Beyond these ultra-popular names though, investors also have access to a variety of other gold ETFs, including a product that houses all of its gold in Switzerland—SGOL—and one that puts all of its bullion in Singaporean vaults—AGOL.

Any of these products look to be fierce competitors for the new gold foursome from AdvisorShares, and especially so since the products listed above are all cheaper than the active ETFs from AdvisorShares. Still, for investors looking for a new way to play gold—and to make a bet on currencies too—the fresh funds from AdvisorShares could be worth a closer look, and may open the gold ETF world even more to retail investors.

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ETFS-ASIAN GOLD (AGOL): ETF Research Reports
 
SPDR-GOLD TRUST (GLD): ETF Research Reports
 
ISHARS-GOLD TR (IAU): ETF Research Reports
 
ETFS-GOLD TRUST (SGOL): ETF Research Reports
 
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