Deutsche Bank (DB) doesn't seem to be having much luck with its stable of clever metals exchange-traded funds.Just look at the bank's gold product, the PowerShares DB Gold ( DGL). In the months since its January launch, investors have given the fund a cavernous yawn. Accumulated assets totaled a paltry $26.3 million by the end of March -- about where it started -- and average daily volume currently runs at an anemic 22,000 shares. In fact, it has made so little impact as a gold investment that Jeff Christian, guru of all things gold and managing director at New York-based specialty consulting firm CPM Group, said he'd never even heard of the DB Gold ETF and couldn't comment further on it. It's not as if gold investing is out of fashion. The granddaddy of gold ETFs, streetTracks Gold Shares ( GLD), picked up an additional 31 tons of gold during the first quarter, worth almost $700 million at today's prices. It brings the fund's recent total holdings to roughly 500 tons, or almost $11 billion. The question is: Why is the DB Gold ETF faring so poorly? It could be that the fund's designers at Deutsche Bank Commodity Services were too clever.
It's worthwhile to note that streetTracks Gold Shares actually has an equivalent negative-yield problem -- the cost of storage and insurance is covered by selling minuscule quantities of the bullion over time -- but that clearly hasn't stopped new money from pouring in.
supposed ability," says Ken Eades, professor of finance at the Darden business school in Charlottesville, Va.
Diminished negative roll and tax advantages aren't the only potential draws to the fund, explains Kevin Rich, CEO of DB Commodity Services and overseer of the bank's stable of commodity and currency ETFs. He says that DB Gold overcomes the problem of "bad assets." Certain asset types, such as gold in bullion form, may not produce "good income" for mutual funds under IRS rulings, whereas profits from DB Gold should, because the ETF owns futures and cash, Rich says. "Mutual funds are always struggling to deal with bad income," says Rich. "And gold is just one thing." The DB Gold product provides another tool for managers, he adds. That may be so, but the gold fund and the other metals ETFs DB launched in January have a long way to go to catch up with streetTracks Gold Shares or even DB's nonmetal ETF cousins, such as the PowerShares DB G10 Currency Harvest ( DBV), which has grown to $335 million since starting at $25 million in September. Like the DB Gold, the PowerShares DB Base Metals ( DBB), the PowerShares DB Silver ( DBS) and the PowerShares DB Precious Metals ( DBP) each held about the same level of assets at the end of March as they did at the beginning of the year, around $25 million. Still, at least one industry watcher doesn't expect any near-term purging by DB. "There are some big ETF providers that feel that in order to be there in the ETF world you need to put some stakes in the ground and let them grow at their own pace," says Tom Lydon, editor of ETFTrends.com in Newport Beach, Calif. And at current speeds, DB could have a very long wait ahead.