Offshore Capitalist

Gold Trackers In Europe

ETF, ETC, T-ETC, ETN Or Certificate?

Exchange-traded product names seem designed to confuse, particularly so when it comes to commodities.

The UCITS rules for collective investment schemes, which apply to European Union member states, require a minimum level of diversification. Therefore, within the EU, a legal entity tracking a single commodity cannot be set up as a fund, and cannot be called an ETF. For that reason, the gold trackers offered by EU-based firms such as ETF Securities, Lyxor, Source and Xetra-Gold are all technically undated, noninterest-bearing debt securities and are called, variously, ETCs, ETNs, T-ETCs and certificates. So far in this comparatively young market, there’s no uniformity in naming conventions, or in legal structures.

All four of the above gold trackers are collateralised—but not necessarily by bullion itself (see the main article).

In Switzerland—a non-EU member—the regulator allows a fund to track a single commodity. For that reason, the gold trackers offered by Swiss banks ZKB and Julius Baer are called ETFs.

Physical Backing?

The big dividing line in the collateralisation of the tracker products is between those that hold physical metal as backing, and those that are backed by some other financial instruments (for example, government bonds).

In the former category (those backed by bullion) are ETF Securities’ Gold Bullion Securities (LSE: GBS.L) and Physical Gold ETC (LSE: PHAU.L); ZKB’s Gold ETF (SWX: ZGLD); Julius Baer’s Gold ETF (SWX: JBGOUX); and Xetra-Gold (XETRA: DE000A0S9GB0).

Gold trackers collateralised by other assets, typically government bonds, include Lyxor’s Gold ETN (LSE: LTNG.L), Source’s just-launched Gold T-ETC (XETRA: SGLD.DE) and ETF Securities’ Gold (LSE: BULL.L), Leveraged Gold (LSE: LBUL.L) and Short Gold (LSE: SBUL.L) ETCs.

Assets under management for the different trackers show that the vast majority of investors’ funds have been directed to those offering exposure to the physical metal.  (Table of AUM as of April-09.)

via Which Gold Tracker? – Features.

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