Gold!

TUVOK

I am in the process of diversifying my portfolio and would like to have a small amount in gold.
I do not wish to have actual gold or gold miners, but I am looking for gold funds which have a good record and could be recommended.
All replies would be appreciated.

DiggerUK

There's gold and there's gold miners. There are also 'miners' that produce gold as a byproduct. Are you aware that the mine that produces the most gold is primarily a copper mine?
 But I'm unsure of what you mean by "gold funds" with none of these in them..._

[Deleted User]

I use SGLN iShares Physical Gold ETC

EdGasketTheSecond

SGLN are CDI's only now; not shares. Up to you but I prefer shares to CDI.

I use GBSS, PHGP for physical gold, SPGP & GDGB for miners

[Deleted User]

EdGasketTheSecond said:

SGLN are CDI's only now; not shares. Up to you but I prefer shares to CDI.

I use GBSS, PHGP for physical gold, SPGP & GDGB for miners

Way above my pay grade this one, but I just checked https://www.moneyobserver.com/fund/WisdomTree-Physical-Gold-GBP and it shows that PHGP is also a CDI (in the legal structure). (or have I read that wrong)

EdGasketTheSecond

Deleted_User said:

EdGasketTheSecond said:

SGLN are CDI's only now; not shares. Up to you but I prefer shares to CDI.

I use GBSS, PHGP for physical gold, SPGP & GDGB for miners

Way above my pay grade this one, but I just checked https://www.moneyobserver.com/fund/WisdomTree-Physical-Gold-GBP and it shows that PHGP is also a CDI (in the legal structure). (or have I read that wrong)

You read it wrong. CDI = Certificate of Depository Interest in this case. iShares being Irish domiciled and in the EU are or have already converted their ETFs to CDI's for trading in London due to Brexit. Wisdom Tree Gold and Silver ETFs are domiciled in Jersey so have no need to do that and you buy shares in the ETF as normal.

bowlhead99

Deleted_User said:

EdGasketTheSecond said:

SGLN are CDI's only now; not shares. Up to you but I prefer shares to CDI.

I use GBSS, PHGP for physical gold, SPGP & GDGB for miners

Way above my pay grade this one, but I just checked https://www.moneyobserver.com/fund/WisdomTree-Physical-Gold-GBP and it shows that PHGP is also a CDI (in the legal structure). (or have I read that wrong)

Two different concepts which happen to share the same initialism 'CDI'.  Your moneyobserver link referred to PHGP as a Collateralised Debt Instrument (which it is), while EdGasketTheSecond prefers to avoid investing in CREST Depositary Interests (which it isn't)

To give background to Ed's post without going all the way into the technical specifics (though recognising that it will still sound like technical mumbo jumbo to some...):

CREST is a UK 'central securities depositary' which is owned by Euroclear and is part of the fabric of the UK stock exchange's trading and settlement system. It allows for electronic trading of shares in dematerialised form (name comes from 'certificateless registry for electronic transfer'), provides an electronic trade confirmation system, and has various other functions such as helping with dividend distributions etc. As it's embedded right in the middle of the trading and settlement of UK shares and bonds, it can also facilitate the UK trading of shares that might otherwise be traded on other exchanges by offering CREST Depositary Interests or CDIs.

With a CDI, CREST as the UK central securities depositary has company shares or bonds or other financial securities deposited with it, and issues electronic 'CREST depositary interests' to the beneficial owners of those underlying shares/ bonds/ securities.

Those CDIs which represent the underlying share that trades on another exchange (e.g. in Europe or the US), are a UK security - a financial instrument that can be traded in real time and be settled through the UK system just like a UK-listed share. But it's not the underlying security, it's a new and separate security which represents an 'interest' in the underlying security which could a be a share or a loan note or some other international depositary interest that exists elsewhere.

Most ETFs traded in the UK are domiciled in places like Ireland, Luxembourg or Italy. The business that runs CREST (Euroclear UK & Ireland) used to be able to directly settle shares in Irish ETFs, but as we are exiting the EU, the regulations mean that Irish ETFs would need to be primarily listed in Europe rather than here, so there have been some recent changes by Irish ETF share issuers.

The issuers of those ETFs (Vanguard being a popular example) are generally moving to a more 'international' central securities depositary model where the shares of the ETF are held centrally by the ICSD (such as Euroclear or Clearstream in Europe) and you can trade these ICSD interests - or if your broker can only handle trades in London which settle through CREST, you can have CREST as the 'local' central securities depositary issue a UK 'CDI' against the interests that CREST themselves hold in their own account with the ICSD. 

So going forward you can trade a UK CDI of an Irish Vanguard ETF in London and still have the rights and rewards of beneficial ownership, just like you might hold a UK CDI for Nestle or Credit Suisse - which are examples of companies whose shares trade on the Swiss stock exchange but which have plenty of investor demand for trading and settlement here in London too.

Since finding out more about how CDIs work, Ed perceives that holding a CDI is not 'as good as' holding the underlying security itself and does not like the idea of the CREST system issuing a tradeable beneficial ownership interest for a share or bond or other underlying DI that trades on another exchange.  Believing that liquidity of the CDI will not be as good as it possibly could be for the underlying asset, or that there is some risk with failure of CREST as a centralised depositary for the UK (especially if the UK depositary interest is only representing another international depositary interest) he prefers to just avoid CDI versions of things that trade elsewhere, and instead buy things that have a primary listing in London, or which can be 'dual listed' in London or somewhere else.

So then looking at 'things that have a primary listing in London or are dual-listed London and elsewhere' he finds WisdomTree's Physical Gold ETC (PHGP) product which is a financial instrument tradeable in London or on Euronext or Boursa Italiana or in Tokyo etc and issued by an entity in Jersey, Channel Islands.

The PHGP product is an ETC or exchange-traded-certificate. It's technically a 'Collateralized Debt Instrument'. What that means is, there's a bunch of gold sitting in a vault in London, and a Jersey entity (via a custodian who looks after the gold) owns the gold and issues certificates to its investors - these certificates are basically loan notes. The gold acts as collateral for the loan notes and the way the structure works, if they want to charge a management fee or operating costs they can reduce the number of ounces of gold which is represented by each instrument. You can sell these debt instruments to other parties on a stock exchange and because they are backed by a specific amount of physical gold, their value will fluctuate with the gold price (subject to management fee).

So, with PHGP the financial instrument you would own is collateralized (because real gold assets act as collateral) and it's a debt instrument (because it was issued to provide finance for the gold asset, and the terms of the instrument mean if the debt were to be settled they would have to pay a known amount of money (albeit that amount fluctuates based on the value of the x ounces of gold which provide the collateral). So, putting it all together, it's a collateralized debt instrument or 'CDI'.  This instrument can be traded like other types of debt or equity securities on a stock exchange such as London, as an 'exchange traded certificate'.   

Generally if you are looking for exposure to the price of physical gold via the stock exchange more directly than owning a company that produces or trades in gold, you can buy such an 'exchange traded certificate' (ETC) such as this, or you could buy a share of an 'exchange traded fund' (ETF) where the fund owns a pile of gold and issues shares to its owners (and you might hold those shares directly, or have beneficial ownership of the rights and obligations attaching to them via some centralised depositary system such as CREST in the UK or others in e.g. Europe or North America).

EdGasketTheSecond said Wisdom Tree Gold and Silver ETFs are domiciled in Jersey so have no need to do that and you buy shares in the ETF as normal.

Except that the Wisdom Tree gold instruments to which you referred are not an 'exchange traded fund' issuing shares; instead, a special purpose vehicle in Jersey with a nominal amount of equity has issued loan notes and used the proceeds of issuance to buy gold which serves as collateral to guarantee payment of the loan, so what you own is a certificate of ownership of that collateralized debt interest, which you can trade electronically on a market just like other types of bonds or shares or financial instruments; but the ETC is a debt security and not itself an 'ownership share' of equity in any fund or business.

TUVOK

Any other gold funds that members can recommend please?

bowlhead99

TUVOK said:

Any other gold funds that members can recommend please?

If you don't want to own gold miners etc but are just looking to buy the commodity, and the reason to buy the commodity is to diversify your portfolio, you could buy something like WisdomTree's Physical Precious Metals (PHPM/PHPP for the dollar or sterling version) which holds a basket of physical precious metals (platinum, palladium, silver, gold).

Gold is of course traditionally more 'investy' while the others are more 'industrial' but they are all still valuable metals (compared to  pure industrial stuff like iron, copper, aluminium etc). So it's diversified metals including some gold, and you want to diversify your portfolio and only have a small amount of your overall portfolio in gold, so it could work. However, as the price may be less volatile as a packaged product than gold on its own (due to being diversified), you may not get the advantages of such volatility if volatility is what you want - i.e. if you are trying to have the diversification of gold price going extremely one way while equities or bonds go extremely the other so you can rebalance and benefit from those swings.

EdGasketTheSecond

PHPM/PHPP, are they not the same structure as PHGP and PHSP then? Why couldn't Tuvok just buy PHGP for gold and why instead are you suggesting 'a basket of PMs'?

bowlhead99

EdGasketTheSecond said:

PHPM/PHPP, are they not the same structure as PHGP and PHSP then? Why couldn't Tuvok just buy PHGP for gold and why instead are you suggesting 'a basket of PMs'?

Yes they are the same structure as well. Of course he can just buy PHGP for gold exposure, but as you have already suggested that, there would be no point me replying to say why not buy it, as a response to his enquiry about whether members had any more  funds they could recommend.

He hasn't given us much to go on other than he is "diversifying my portfolio and would like to have a small amount in gold", and that any replies would be appreciated. So one reply that might be appreciated would be, "have you considered an investment that has gold exposure and also has some other precious metals exposure - here's one for example".

Beyond the general request for 'gold funds which have a good record', he hasn't given us anything extra to go on other than he doesn't want to invest in 'actual gold or gold miners'. 

In saying "I do not wish to have actual gold", the option of having an exchange traded certificate representing "actual gold" as you recommended is perhaps ruled out - but we might read it as you have done and just assume that he only meant that he doesn't want a pile of metal sitting on his coffee table and would prefer something the could sit in an online account, so an ETC product is fine. 

If we take that as the interpretation, as an alternative to that (i.e. to get exposure to gold price via some sort of an online account, with some counterparty risk, while still not having a pile of metal on your coffee table), the products from Bullionvault might fit the bill - though you can't hold them in a brokerage account or ISA or the cheapest SIPPs.

Otherwise there are other ETCs such as SGLP from Invesco, SGLN from iShares. Here in Europe, the ETC is more popular than the ETF as a structure to take exposure to physical metal.  The things we call Gold 'funds' are OEICs which invest in gold-related companies, such as Ruffer Gold, Charteris Gold & Precious Metals, Blackrock Gold & General etc, but perhaps they are ruled out because OP said he didn't actually want gold miners.  However, perhaps 'don't want gold miners' can be interpreted narrowly, in the same way as 'don't want actual gold'... in that he doesn't want an individual bar of gold on his desk or a share of a gold miner in his account, but would be quite happy with an exchange traded certificate backed by actual gold, or a fund that held a diverse bunch of gold miners.