The debut of ETFs Physical Swiss Gold Shares (SGOL) today pits the new fund, from successful issuer ETF Securities, against existing physical gold ETFs like SDPR Gold Shares (GLD) and iShares COMEX Gold (IAU).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 Physical Commodity ETFs Bloom.) ETF Securities debuted its first U.S. physical commodity fund, ETFS Silver Trust ( SIVR) 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 Vanguard Ahead of ETF Curve.) 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 ( UNG), iShares S&P GSCI Commodity Indexed Trust ( GSG) and iPath Natural Gas ( GAZ) into halting creation. One futures-backed fund, the DB Crude Oil Double Long ETN ( DXO), recently shut its doors. (See Huge ETN Euthanized and Leveraged ETF Shut Down Won't Be Last.) 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 Natural Gas Heads for Super Contango.) With all of the commotion surrounding futures-backed commodity funds, physical commodity ETFs appear to be a low-stress solution. (See ETFs: Cry Transparency.) 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.