iShares, the world's biggest ETF company, cut the price on its
physical gold ETF, the Comex Gold Trust (NYSEArca:IAU), by more
than a third last week in a possible sign of a price war with its
biggest competitor, the SPDR Gold Shares (NYSEArca:GLD).
According to an iShares filing last week, IAU now costs
investors 0.25 percent a year, compared with the 0.40 percent price
it charged previously and that State Street Global Advisors still
charges on GLD. Another competitor, ETFS Physical Swiss Gold
Shares (NYSEArca:SGOL), charges an annual management fee of 0.39
percent. The price change was effective July 1, iShares' BlackRock
said in a press release.
Gold has been a hot safe-haven investment this year since fiscal
problems in Europe began to create renewed uneasiness about the
fragile state of the global economy. GLD rose more than 13 percent
in the first half, and closed today about 1 percent higher at
$117.73. It has almost tripled in price since its rollout in
November 2004, riding a bullish commodity wave that's been building
for the past 10 years.
In its press release, BlackRock said the move was an attempt at
making its gold ETF more accessible at a time the metal is
extremely popular among investors. It also cited IAU's previously
announced 1-for-10 share split as part of its plan to make the ETF
more attractive to potential investors. In his blog, Matt Hougan
argues iShares has a decent chance of stealing market share away
Officials at both San Francisco-based iShares and Boston-based
SSgA weren't immediately available to comment.
SSgA's GLD is by far the biggest gold ETF, with almost $53
billion in assets at the end of last month, according to data
compiled by IndexUniverse.com. By contrast, IAU has about $3.36
billion in assets, while SGOL has $607 million.
More Than Meets The Eye
While offering a 37.5 percent discount on price is an
eye-catching move by iShares, investors aren't necessarily going to
flock to the broadly similar iShares ETF, which, like GLD, is
backed by physical gold held in a vault.
First, there are trading costs to consider, which can add up
quickly for those who trade GLD heavily, thus obviating any
long-term savings associated with the lower expense ratio. And
there are quite a lot of traders who do buy and sell GLD. The gold
ETF's turnover in June was more than $39 billion, the fifth-most
traded of all U.S. exchange-traded funds, according to
Another important variable is taxes. Commodities, such as gold,
and ETFs that hold gold, are taxed as collectibles, meaning even
long-term holders of funds like GLD don't qualify for long-term
capital gains tax treatment, and instead have to pay ordinary tax
rates of up to 28 percent. That could easily be a deterrent that
trumps any cheaper expense ratio for a selling GLD holder who might
face such a tax bill.
iShares is owned by New York-based money management firm
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