Gold ETF beats it all …Again(October Review)

A Review of performance of GOLD ETF based on earlier post Gold ETF beats it all

Gold Exchange Traded funds have performed exceptionally well since their inception in India. One of the primary reasons attributed to it could be inherent bias of Indians towards gold as a precious metal. However, recently Gold is receiving a fair share for investment purposes as well. In times of economic and financial turmoil it is a safe heaven for many.

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Gold EFT’s which are primarily traded on NSE (see codes) have outperformed many local and International equity indices(BSE, NIFTY, Dow Jones, Nikkei, Hang Seng).
At a time when equities valuations around the world were getting beaten down Gold ETF has provided investors promising returns of more than 15%. Comparing this returns to double digit negative returns of equity indices, surely makes a case for many investors to diversify their existing portfolios and include any of the available Gold ETF’s (BeEs, Kotak, Quantum, Reliance, and UTI)

Listed below is a comparison of returns of Gold ETF with various indices around the world. The NAV for 29-Oct-2008 is considered for comparison. Some data is proportionately adjusted for comparative study.

Scheme Name 1 mth % 3 mths % 6 mths % 1 yr % 3 yrs % NAV Category Structure
UTI Gold ETF (10.52) (8.45) 1.19 16.39 NA 1164.88 ETF Open Ended
Gold BeES (10.51) (8.46) 1.18 16.32 NA 1162.31 ETF Open Ended
Kotak Gold ETF (10.52) (8.44) 1.15 16.29 NA 1165.41 ETF Open Ended
Quantum Gold Fund – Growth (10.51) (8.35) 1.31 NA NA 580.25 ETF Open Ended
Reliance Gold ETF – Dividend (11.07) (9.48) (0.01) NA NA 1136.79 ETF Open Ended
Average performance of similar category funds (10.63) (8.64) 0.96 16.33 NA 1041.93
S&P Nifty (32.64) (38.03) (47.25) (52.63) 5.04
BSE Sensex (31.25) (37.22) (47.06) (52.90) 5.43
Nasdaq (7.32) (5.95) 0.78 (12.73) 1.18
FTSE (2.13) (6.46) (6.23) (14.07) 0.26
Dow Jones (1.89) (5.93) (5.68) (14.03) 2.25
Strait Times (8.74) (14.88) (11.90) (26.62) 3.40
KLSE (6.68) (14.81) (15.30) (18.77) 4.34
HangSeng (8.80) (12.73) (11.21) (8.07) 12.00
Kospi (8.36) (17.24) (12.81) (16.68) 11.10
MSCI World Index 7.41 2.33 8.16 18.73 16.22
Nikkei (6.06) (6.66) (7.57) (21.20) 0.90
*Note:- Returns calculated for less than 1 year are Absolute returns and returns calculated for more than 1 year are compounded annualized.

Golden Quotes:

James Grant : “Nothing beats a little cash in a bear market and the oldest form of cash is gold.”

Karl Marx : “Although gold and silver are not by nature money, money is by nature gold and silver.”

At the end of the day, bullion is more important than the billion.

Related Posts Only (manually created not automatically generated, thankfully)

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F.A.Q’s ETF (PART 3)

ETFs are different from Mutual funds in the sense that ETF units are not sold to the public for cash. Instead, the Asset Management Company that sponsors the ETF (Fund) takes the shares of companies comprising the index from various categories of investors like authorized participants, large investors and institutions. In turn, it issues them a large block of ETF units. Since dividend may have accumulated for the stocks at any point in time, a cash component to that extent is also taken from such investors. In other words, a large block of ETF units called a “Creation Unit” is exchanged for a “Portfolio Deposit” of stocks and “Cash Component”.

The number of outstanding ETF units is not limited, as with traditional mutual funds. It may increase if investors deposit shares to create ETF units; or it may reduce on a day if some ETF holders redeem their ETF units for the underlying shares. These transactions are conducted by sending creation / redemption instructions to the Fund. The Portfolio Deposit closely approximates the proportion of the stocks in the index together with a specified amount of Cash Component. This “in-kind” creation / redemption facility ensures that ETFs trade close to their fair value at any given time.

Some investors may prefer to hold the creation units in their portfolios. While others may break-up the creation units and sell on the exchanges, where individual investors may purchase them just like any other shares.

ETF units are continuously created and redeemed based on investor demand. Investors may use ETFs for investment, trading or arbitrage. The price of the ETF tracks the value of the underlying index. This provides an opportunity to investors to compare the value of underlying index against the price of the ETF units prevailing on the Exchange. If the value of the underlying index is higher than the price of the ETF, the investors may redeem the units to the Sponsor in exchange for the higher priced securities. Conversely, if the price of the underlying securities is lower than the ETF, the investors may create ETF units by depositing the lower-priced securities. This arbitrage mechanism eliminates the problem associated with closed-end mutual funds viz. the premium or discount to the NAV.