RBS Securities, the unit of the Royal Bank of Scotland that launched its first U.S.-listed exchange-traded note last year, rolled out a new gold-based ETN today, its third ETN in as many months, which began trading today on the New York Stock Exchange's Arca platform.
The RBS Gold Trendpilot ETN (NYSEArca: TBAR) tracks the RBS Gold Trendpilot Index, which uses RBS' proprietary "trend-following" strategy to provide exposure either to the price of gold bullion, or to the yield on a hypothetical investment in three-month U.S. Treasurys.
In its prospectus, TBAR defines the price of gold bullion as the spot price of physical gold, as measured by the afternoon gold-fixing price for delivery in London through a member of the London Bullion Market Association.
Like its other Trendpilot ETNs, TBAR has built-in downside protection for investors: the three-month "T-Bill rate," which kicks in should the price of gold bullion fall below its 200-day moving average for at least five straight days.
That downside protection also comes with a price break. When the ETN is tracking gold, TBAR investors pay an annual expense ratio of 1.00 percent of assets under management. But when the fund switches over to U.S. Treasurys, expenses decline to 0.50 percent.
The company’s two previous offerings—the RBS US Large Cap Trendpilot Exchange Traded Note (NYSEArca: TRND) and the RBS US Mid Cap Trendpilot Exchange Traded Notes (NYSEArca: TRNM)—track large- and mid-cap equity indexes and have similar downside protection based on three-month Treasury returns.
How Exposure Changes
TBAR’s dual exposure scheme is designed in the following manner: If the price of gold is at or above its 200-day moving average for five consecutive days, then the index will track the price of gold and will have no exposure to the T-bill rate. Conversely, the index switches back to tracking the T-Bill rate when gold is below its 200-day moving average for five consecutive days.
"The index strategy aims to mitigate, to some extent, the volatility of the price of gold bullion by tracking the T-Bill rate if the price of gold bullion is on a downward trend," RBS executive Michael Nelskyla said in a press release.
As an ETN, TBAR represents an unsecured debt obligation of RBS, which means that if the issuer were ever to declare bankruptcy, investors would likely lose their stake in the fund. TBAR will mature on Feb. 5, 2041.