- BlackRock has been managing index portfolios since 1971
- An easier way to gain exposure to gold without holding physical bars
- The ETC’s low charges help it track the Gold Spot Price
How it fits in a portfolio
An ETC is a another form of exchange traded product that offers a way to track the performance of a commodity, commodity index or currency. This includes markets like oil, precious metals, natural gas, and livestock. They also trade on stock exchanges, like shares. This means their price fluctuates throughout the day.
The iShares Physical Gold ETC provides exposure to the spot price of gold, which is the current price in the marketplace at which the commodity can be bought or sold.
A passive fund is one of the simplest ways to invest and can be a low-cost way to add exposure to securities like precious metals. ETCs that track gold could help diversify a portfolio focused on other assets, such as shares and bonds.
We think investments in a specific commodity like gold, should usually only form a small part of a well-diversified investment portfolio.
Manager
There are no portfolio managers responsible for this ETC as each unit is issued as a debt note that represents the price of gold and there is therefore nothing to manage on an ongoing basis.
While there are no portfolio managers, Blackrock have a Risk Quantitative Analysis Group which oversees and assesses the performance of all their funds including the gold ETC. They ensure that the ETC continues to use the gold price which is determined by the London Bullion Market Association (LBMA). The LBMA is an international trade association, representing the global market for gold and silver bullion.
Process
The product is a physically backed ETC meaning it represents real gold bars held in a vault. Gold backing the ETC is held in a secured and allocated account. In the event of the custodian default, in this case JPMorgan, iShares Physical Metal plc is entitled to arrange the removal of the bars in the account and make alternative vaulting arrangement for the continued protection of clients.
ETC units will only be issued when the physical metal is transferred to the allocated account. This ensures that the ETC securities are always physically backed by allocated metal.
When the number of ETC units to be created does not match a whole number of gold bars, one extra bar is allocated in the allocated account to protect investors and avoid metal in unallocated form. iShares will carry out daily reconciliation of the number of bars required for the ETC. The list of the metal bars in the vault are published daily on iShares.com.
JPMorgan also act as the custodian for the gold bars, ensuring it is kept in a highly secure vault in London on behalf of ETC investors.
As the investment is not domiciled in the UK it may not be subject to the FSCS compensation protection.
Culture
BlackRock is currently the largest asset manager in the world. The company was founded by eight partners including current CEO Larry Fink and is known for both active and passive strategies. Employees at BlackRock are encouraged to hold shares in the company so that they are engaged with helping the company perform well and grow. The iShares brand represents BlackRock's family of index tracking and exchange-traded funds.
As the world's largest asset manager, and with lots of resource and knowledge under its belt, BlackRock aims to drive further development in this part of the investment market. Being such a large player in the index tracking arena gives BlackRock unique access to the marketplace, which can help reduce trading costs.
ESG Integration
BlackRock has offered Environmental, Social and Governance (ESG)-focused funds for several years, including through its iShares range of passive products. However, it only made a company-wide commitment to ESG in January 2020.
The firm has courted controversy in recent years for failing to put its significant weight behind shareholder resolutions aimed at tackling climate change. It responded by committing to be more transparent on its voting activity and providing rationales for key votes. The firm also outlines its work on voting and engagement in annual and quarterly Stewardship reports.
All gold bars included in the ETC meet the LBMA responsible gold criteria – a set of criteria that ensure gold bars are responsibly sourced and contain a certain purity while bearing the stamp of a LBMA approved refiner.
Cost
The ETC currently has an ongoing annual charge of 0.12%.
There are no charges from HL to hold ETCs within the HL Fund and Share Account. The annual charge to hold ETCs in the HL ISA or SIPP is 0.45% (capped at £45 p.a. in the ISA and £200 in the SIPP). Ensuring an index fund has a low charge is an important part of tracking the underlying index closely.
As ETCs trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges within any Hargreaves Lansdown account.
Performance
The iShares Physical Gold ETC has done a good job tracking the price of gold over the long term. In the last 10 years the ETC has returned 48.86% versus gold’s 52.12%*. As is typical of an exchange traded fund, it’s fallen behind the benchmark over the long term because of the costs involved. Though past performance is not a guide to future returns.
Tracking difference for this ETC is driven by the compounding effect of the annual charge. This will have been larger in the past due to higher annual charges, which have been reducing over time. This is a positive for investors.
Over the last year, gold has returned 8.55% to the end of March 2023. With rising inflation, recent banking issues and the ongoing Ukraine crisis, gold has been seen as a potential safe haven nearing previous highs around $2,000 per ounce.
The ETC also tracks the price of gold in dollars instead of sterling, meaning no currency hedging is applied. Therefore, if the gold price in dollars does not change but the dollar/sterling exchange rate does, then this will impact the gold price performance of this investment. This could have either a positive or negative effect depending on the direction of the exchange rate.
Given BlackRock's size, experience and expertise running ETCs, the fund should continue to represent the price of gold well in the future.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Mar 18 – Mar 19 | Mar 19 – Mar 20 | Mar 20 – Mar 21 | Mar 21 – Mar 22 | Mar 22 – Mar 23 | |
| iShares Physical Gold ETC | 5.08% | 30.21% | -5.70% | 20.18% | 8.41% |
| LBMA Gold Price | 5.34% | 30.53% | -5.54% | 20.35% | 8.55% |
Past performance is not a guide to the future. Source: *Lipper IM 31/03/2023.
FIND OUT MORE ABOUT ISHARES PHYSICAL GOLD ETC INCLUDING CHARGES
VIEW ISHARES PHYSICAL GOLD ETC KEY INFORMATION DOCUMENT
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