iShares Gold ETF Debuts

June 08, 2018

Today iShares launched an ETF that seeks to provide exposure to the price performance of gold. The iShares Gold Strategy ETF (IAUF) is technically actively managed, as it is set up as a 1940 Act fund with a Cayman Islands subsidiary; however, it looks to correlate closely with the Bloomberg Composite Gold Index.

IAUF comes with an expense ratio of 0.25% after the application of a 6 basis point waiver. The fund lists on the Cboe BZX exchange, which is owned by Cboe Global Markets, parent company of ETF.com.

“IAUF is a transparent active ETF, but it’s not actively managed in the traditional sense, meaning IAUF will not be managed based on fundamental or technical market views,” said Mark Alberici, head of iShares product innovation at BlackRock.

However, because the fund is looking to correlate closely with a reference benchmark, it also carries all the benefits of a rules-based transparent ETF, he adds.

Methodology

The new ETF can invest in a wide range of gold vehicles, including derivatives such as futures; and other gold ETFs including the nearly $12 billion iShares Gold Trust (IAU). These investments will be held in the fund’s Cayman Islands subsidiary, which can represent up to 25% of the total portfolio. The U.S.-domiciled portion of the fund will invest primarily in fixed-income securities, cash and cash equivalents for collateral purposes, but also with the goal of generating interest income and capital appreciation, the prospectus says.

The document further notes that, while the fund is not obligated to track the performance of the index designated as its benchmark, it will invest in the same futures contracts and the same gold ETFs as the index.

The 1940 Act structure offers more efficient tax reporting and will likely appeal to investors who want exposure to gold but prefer to avoid grantor trusts, commodity pools and their accompanying tax issues. Investors in IAUF can simply receive 1099 forms, notes Alberici.

“The structure is more attractive for advisors and investors in model-based strategies that prefer a ’40 Act structure,” he added.

IAU, BlackRock’s large gold ETF, also comes with an expense ratio of 0.25%, and Alberici says that pricing consistency was important to the issuer. The even pricing eliminates expense ratio from the decision-making process, allowing the investor to consider both funds solely based on their other merits.

Contact Heather Bell at [email protected]

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