New Gold ETF from Merk Hits The Market: OUNZ - ETF News And Commentary

Thanks to a strong equity market and taper fears, gold had a volatile run in 2013 and ended up booking double-digit losses. However, to its relief the safe haven metal has seen a decent performance since the start of the year. In fact, gold has easily outperformed the broader market index S&P 500 in the year-to-date period (read: 3 Non-Leveraged ETFs Beating SPY).

Emerging market crash and rising concerns about the health of the U.S. economy increased the demand for gold as investors rushed to buy the metal as a flight to safety. Investors usually favor gold over other riskier assets during times of market uncertainty. Moreover, gold is also viewed as means of savings, while some use it as a means of exchange.

While one can definitely store this precious metal in physical form to obtain its benefits, holding the metal in ETF form is an easy and liquid way to do so as well (read: Top Ranked Precious Metal ETF in Focus: WITE).

In view of this convenience, a new gold ETF, The Merk Gold Trust, was just launched. This will enable investors to swap their shares in the exchange traded fund for bars of physical gold whenever they choose to cash out. The fund will trade under the ticker “OUNZ”.

OUNZ in Focus

The fund primarily seeks to provide investors with an opportunity to invest in gold through shares and allows them to take delivery in physical bullion in exchange. In addition, the fund also proposes to reflect the price performance of gold less fees.

Investors can either opt to take physical delivery of London Bars or they can also choose to have the gold exchanged into other gold coins or bars.

The fund charges 40 basis points as an annual fee.

How does it fit in a portfolio?

Gold is at the moment facing some weakness on the back of stronger economic data such as the rise in consumer prices, fall in jobless claims to the lowest level since 2007 and manufacturing strength (read: Gold in Focus: Can Precious Metal ETFs Continue to Rally?).

However, irrespective of the current short-term volatility, gold is an essential investment option in times of uncertainty. Apart from the precious metal's safe haven appeal, it provides a lot of other benefits as well.

Precious metals generally have a low-to-negative correlation with the movements in the financial markets, which help in providing diversification benefits to one's portfolio. Moreover, it is also viewed as better than paper money and is an asset of central banks.

Also, gold provides a hedge against inflation. Most importantly, and unlike equities, bonds and currencies, the yellow metal is not a liability of any government.

Hence, the fund can be included in a portfolio to enjoy the above advantages.

ETF Competition

SPDR Gold Trust GLD, the most popular gold exchange traded fund, seems to be the biggest competitor for OUNZ. It is the most liquid physically backed gold offering in the precious metal space. The fund manages an asset base of $32.5 billion and charges the same fees as OUNZ (see all Precious Metals ETFs here).

The fund too allows investors to take physical delivery of gold. However, physical redemption in this product has been limited to the authorized participants in lots of 100,000 shares, which is $12.57 million worth of gold bars, considering GLD's last traded price of $125.70 a share.

iShares Gold Trust IAU and ETFS Physical Swiss Gold Shares SGOL are the other two popular products in this space. While IAU manages an asset base of $6.9 million, SGOL has amassed $1.1 million since its inception. Both these funds are slightly cheaper than GLD, with IAU charging 25 basis points and SGOL 39 basis points.

Though the new fund might face stiff competition from GLD, the king in this space, as well as from other gold products, OUNZ is expected to attract a good many retail investors as its minimum share exchange is roughly 100 shares for one ounce of gold.

Also, the trust offers a wide range of options for converting shares to physical gold (such as bars, coins and little one-ounce bars). However, one should remember that this facility obviously doesn't come at a free cost and investors have to pay extra in case they choose to convert shares to gold in small denominations.

Still, it will be interesting to see if investors embrace this convertibility option, especially considering that OUNZ isn't too much more expensive than its counterparts. Still liquidity might be an issue for traders, so investors interested in the gold market should definitely keep an eye on this interesting and novel fund from Merk.

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SPDR-GOLD TRUST GLD: ETF Research Reports
 
ISHARS-GOLD TR IAU: ETF Research Reports
 
MERK GOLD TRUST (OUNZ): ETF Research Reports
 
ETFS-GOLD TRUST SGOL: ETF Research Reports
 
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