The debut of ETFs Physical Swiss Gold Shares (SGOL) - Get Report today pits the new fund, from successful issuer ETF Securities, against existing physical gold ETFs like SDPR Gold Shares (GLD) - Get Report and iShares COMEX Gold (IAU) - Get Report.
Physical commodity ETFs offer investors exposure to physical stores of precious metals like gold, silver and palladium. Each share of the fund represents a fractional ownership in a supply of physical gold held for shareholders in a vault. By owning shares of these ETFs, rather than buying bars of gold, investors can avoid hassles like storage.
The timing of SGOL's debut couldn't be better. September's gold surge helped the yellow metal go as high as $1,000 a troy ounce, as investors look to the metal for purchasing protection and stability. Despite outflows from some gold ETFs in August, the new product from ETF Securities seems destined for greatness.
For some time now, ETF Securities has been quietly establishing itself as a global leader in physical commodity ETFs. The London-based commodity ETF provider has been busy launching a variety of physical ETFs worldwide. While SGOL will be only the second U.S. offering, ETF Securities launched five physical commodity funds in Tokyo this summer as older funds in London ballooned. (See
ETF Securities debuted its first U.S. physical commodity fund,
ETFS Silver Trust
in late July. The new fund has been a hit, filling a gap in the U.S. market for physical silver ETF funds, and now has more than $130 million in assets.
SGOL offers the same exposure as older rivals like GLD and IAU, but at a lower price point. While the new fund is up against mammoth rivals like the $34.7 billion GLD and $2.4 billion IAU, it has aimed to establish itself by undercutting their price points. The expense ratio for SGOL is 0.39%, lower than IAU and GLD's 0.4% ratios.
If you're not convinced that fractional price improvements matter, check out the headway that funds from Vanguard and PIMCO are making in the ETF industry by going after giants like iShares. (See
Regulatory pressure on futures-based commodity ETFs could also help to drive investors into physical commodity funds like SGOL. A series of hearings by the Commodities Futures Trading Commission has paralyzed a number of popular commodity ETFs this summer.
Anticipated regulatory changes have stunned futures-backed funds like
United States Natural Gas
iShares S&P GSCI Commodity Indexed Trust
iPath Natural Gas
into halting creation.
One futures-backed fund, the
DB Crude Oil Double Long ETN
, recently shut its doors. (See
Regulatory uncertainty and creation halts have caused these commodity exchange-traded products to behave badly. UNG has been trading at outrageous premiums and has made structural changes to the underlying basket to keep operating. (See
With all of the commotion surrounding futures-backed commodity funds, physical commodity ETFs appear to be a low-stress solution. (See
Keep an eye out for more physical commodity ETFs from ETF Securities in the U.S. This is one issuer who is truly in the right place at the right time.
At the time of publication, Dion was long IAU.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.