Fund Focus August 2010

Fund Focus – August 2010
ETF Securities Physical Gold (Exchange Traded Commodity)

Fund aims

ETFS Physical Gold (PHAU) is designed to offer investors a simple, cost-efficient and secure way to access the precious metals market. PHAU is intended to provide investors with a return equivalent to movements in the gold spot price less fees.

Key Facts

Tracks the price of gold, not a portfolio of equities
Simple to trade on a major stock exchange
Settled and traded in ordinary broker accounts
Transparent tracking with clear pricing
Backed by physical, allocated metal
Provides additional portfolio diversification
Able to short, and margin eligible
0.39% total expense ratio

About exchange traded commodities

ETCs track commodities - not commodity companies - and enable investors to gain exposure to commodities without trading futures or taking physical delivery (i.e. receiving 10 tonnes of wheat on your doorstep!).

Benefits

Accurate ETCs accurately track the underlying commodity index or individual commodity
Liquid ETCs are open-ended securities, and therefore are not limited to on-exchange volumes
Accessible ETCs are traded and settled on regulated stock exchanges, the same as any equity, and can be purchased and held in ordinary brokerage or custodial accounts
Simple ETCs do not involve any of the difficulties with buying and then managing a futures position (eg. worrying about margin calls, contracts expiring and rolling positions) or in buying and storing physical commodities
Transparent ETC pricing is based on a transparent formula with the pricing updated daily on the ETF Securities website
Flexible: Investors can go long or short ETCs

About Gold

There are a number of reasons why one would hold gold in their overall portfolio:
As a hedge against inflation
As a safe haven in times of geopolitical and financial market instability
As a commodity, based on gold’s supply and demand fundamentals
As a store of value
As a portfolio diversifier

Gold is a monetary metal whose price is determined by inflation, by fluctuations in the dollar and U.S. Stocks, by currency related crisis, interest rate volatility and international tensions, and by increases or decreases in the prices of other commodities. The price of gold reacts to supply and demand changes and can be influenced by consumer spending and overall levels of affluence.

Gold is different from other precious metals such as platinum, palladium and silver because the demand for these precious metals arises principally from their industrial applications. Gold is produced primarily for accumulation; other commodities are produced primarily for consumption. Gold’s value does not arise from its use and worldwide acceptance as a store of value. Gold is money.

Comments

The ETF Securities Physical Gold ETC was included in the aggressive portfolio for the first time at the last review. This was partly motivated by our desire to diversify the types of asset held (i.e. equities, fixed interest, commodities etc) and partly due to our view that markets would remain volatile over the proceeding quarter. Over the 1 month period (to 27/08/2010) the security has returned 4.68%* and over the 3 month period (to 27/08/2010) has returned 1.99%.*

Any investor thinking about holding gold as an investment should seriously consider the five reasons for holding gold listed above. To what extent do you feel inflation will rise? Do you see any end to the current economic turbulence? Will commodity prices generally rise over the long term? These are all questions you should be asking yourself.

With a portfolio review imminent we will be revising our thoughts on gold as an investment in the very near future. To discuss any of the issues raised above please contact an adviser.

*information correct as at 27/08/2010. Source: Morning star


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This document is intended to provide general information and does not represent a personal recommendation of any service or product. The value of investments can fall as well as rise and you may not get back the full amount invested. Past performance is not a guide to future returns. The sections within this document are opinion onlyand do not constitute advice. Other charges may be applicable and are subject to change without prior notice. Please refer to our brochure for information on our other products and services. We will always recommend that our clients seek advice before making a decision on whether to invest.