On the 8th of October, the first zero-fee ETN for gold and silver was launched in New York City by the English Bank Barclays. The launch involved the iPath Gold ETN-GBUG and the iPath Silver ETN-SBUG. This launch adds to the existing family of 45 iPath products offered by Barclays, two exposures tracking the Barclays Gold 3 Month Index Total Return, and the Barclays Silver 3 Month Index Total Return, waiving the minimum fee of 0,30% of ETRACS UBS Bloomberg CMCI Gold Total Return ETN (UBG).
Barclays has muscled itself into a price war in the precious metal investment market, and has joined a growing number of institutions that aren’t charging any fees on their investment products. Many fronts were recently opened in the brutal price war between Asset Managers: Fidelity Investments started the first no-fee mutual funds in August, attracting over $1 billion in their first month, Social Finance Inc. has lowered fees on two large stock ETFs, and Salt Financial is currently paying investors to own their low-volatility fund. Taking into account Bloomberg’s data, about 70% of US ETF assets charged $2 per $1,000 invested or less; it seems understandable why the Asset Managers are promoting aggressive cuts of the fees to increase their competitiveness.
The zero-fee product’s launch happens at a strategic time: the worldwide demand for gold rose 8% in the first semester of 2019, reaching the highest peak since 2016. The driving forces behind gold demand are radically individuated by Central Bank buying 224t of gold net in Q2 and healthy Q2 inflows directed to European-listed ETFs, reaching a record of 1,184 t. According to the World Gold Council, who represents bullion mining companies, Gold ETFs have reached a record of 2,810 tonnes in late September, with a rise of the price of gold to $1,550 an ounce. The main factors leading inflows into the precious metal sector were geopolitical instability, the rallying gold price, and the lower interest rates.
Barclays has muscled itself into a price war in the precious metal investment market, and has joined a growing number of institutions that aren’t charging any fees on their investment products. Many fronts were recently opened in the brutal price war between Asset Managers: Fidelity Investments started the first no-fee mutual funds in August, attracting over $1 billion in their first month, Social Finance Inc. has lowered fees on two large stock ETFs, and Salt Financial is currently paying investors to own their low-volatility fund. Taking into account Bloomberg’s data, about 70% of US ETF assets charged $2 per $1,000 invested or less; it seems understandable why the Asset Managers are promoting aggressive cuts of the fees to increase their competitiveness.
The zero-fee product’s launch happens at a strategic time: the worldwide demand for gold rose 8% in the first semester of 2019, reaching the highest peak since 2016. The driving forces behind gold demand are radically individuated by Central Bank buying 224t of gold net in Q2 and healthy Q2 inflows directed to European-listed ETFs, reaching a record of 1,184 t. According to the World Gold Council, who represents bullion mining companies, Gold ETFs have reached a record of 2,810 tonnes in late September, with a rise of the price of gold to $1,550 an ounce. The main factors leading inflows into the precious metal sector were geopolitical instability, the rallying gold price, and the lower interest rates.
The aggressive move by Barclays will affect their competitors’ fees, challenging their main competitors’ products: the iShares Gold Trust, offered by BlackRock, and State Street SDR Gold Shares (GDL). State Street runs the world’s largest gold ETF, called GDL, owning $44.5bn in assets, with a fee of 0,4 percent. Blackrock has launched directly competing for products with lower fees, including iShares Gold Trust, developed to allow cost-effective access to physical gold and to diversify the investors’ portfolio, assuring protection against inflation.
Depending on the reception among the investors to Gold and Silver ETNs, Barclays will also look to apply zero fees to other derivative-linked products, but what differentiates ETNs from ETFs?
The ETN are medium-term notes, senior unsecured debt obligations of Barclays Bank PLC, that offer exposure to the performance of an index.
Exchange-traded notes are structurally similar to Exchange-Traded Fund, with the main difference that ETFs represent a stake in an underlying commodity. ETFs provide investments into a fund backed with assets counting stocks, bonds, or gold. If you purchase an ETN, you are purchasing a debt product similar to a bond, backed by a high credit rating bank. ETN were built to facilitate access to markets and sophisticated strategies for retail investors. An ETN promises to pay at maturity the value of the market index, or the benchmark, to which it is related, minus the management fee. Still, as any other debt security, the repayment is tied to the credit risk of the bank issuer. ETN investors are not subject to taxes in the short term, as the value of the dividends are incorporated into the index’s return, and are not issued to the investors.
Focusing on Barclays’ products, the performance of iPath Gold ETN and Silver ETN will not reflect the metals’ spot prices. The futures contracts are intended to track the performance neither of gold nor silver: the price of gold, or the price of silver, could eventually perform differently than the index, contraposing positive return of the metals to a negative Index Performance. iPath reflects the performance of specified Gold/Silver futures contracts, which will become the first liquid contracts in three months, and the return that corresponds to the weekly announced interest rate for specified 3-month US Treasury bills.
Even though ETNs do not charge fees to the investors, they generate a profit for the issuer, which may also be present while the market value ETNs declines. ETNs are exposed to the Commodity Market risk and the Uncertain Principal Repayment, considering that the prices of the futures are unpredictable, and a decrease of the index could lead to the loss of the entire investment.
However, the absence of a physical back asset may lead to Barclays’ Notes struggling to win over investors, even considering the absence of tax and fees advantage.
Greis Gaeta
Depending on the reception among the investors to Gold and Silver ETNs, Barclays will also look to apply zero fees to other derivative-linked products, but what differentiates ETNs from ETFs?
The ETN are medium-term notes, senior unsecured debt obligations of Barclays Bank PLC, that offer exposure to the performance of an index.
Exchange-traded notes are structurally similar to Exchange-Traded Fund, with the main difference that ETFs represent a stake in an underlying commodity. ETFs provide investments into a fund backed with assets counting stocks, bonds, or gold. If you purchase an ETN, you are purchasing a debt product similar to a bond, backed by a high credit rating bank. ETN were built to facilitate access to markets and sophisticated strategies for retail investors. An ETN promises to pay at maturity the value of the market index, or the benchmark, to which it is related, minus the management fee. Still, as any other debt security, the repayment is tied to the credit risk of the bank issuer. ETN investors are not subject to taxes in the short term, as the value of the dividends are incorporated into the index’s return, and are not issued to the investors.
Focusing on Barclays’ products, the performance of iPath Gold ETN and Silver ETN will not reflect the metals’ spot prices. The futures contracts are intended to track the performance neither of gold nor silver: the price of gold, or the price of silver, could eventually perform differently than the index, contraposing positive return of the metals to a negative Index Performance. iPath reflects the performance of specified Gold/Silver futures contracts, which will become the first liquid contracts in three months, and the return that corresponds to the weekly announced interest rate for specified 3-month US Treasury bills.
Even though ETNs do not charge fees to the investors, they generate a profit for the issuer, which may also be present while the market value ETNs declines. ETNs are exposed to the Commodity Market risk and the Uncertain Principal Repayment, considering that the prices of the futures are unpredictable, and a decrease of the index could lead to the loss of the entire investment.
However, the absence of a physical back asset may lead to Barclays’ Notes struggling to win over investors, even considering the absence of tax and fees advantage.
Greis Gaeta