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Gold ETFs Still Gaining Ground In India
By Cris Sholto Heaton | 04 May, 2012

Gold funds have been the main growth story for the ETF industry in India so far, accounting for around three-quarters of local ETF assets under management. And trading trends on the Akshaya Tritiya holy day last month demonstrated very clearly how they are making their mark in the world’s largest consumer gold market.

Akshaya Tritiya is seen an auspicious time to invest in gold and jewelers’ shops—which still account for around 90 percent of gold purchases—usually see a strong increase in traffic on the day. But last year’s run-up in gold prices—accentuated in local terms by the weakness of the rupee—has hurt demand for physical gold and jewelers were reported to be downbeat about their prospects this year.

However, with gold ETFs having seen strong rises in trading volumes on Akshaya Tritiya in recent years, local stock exchanges chose to extend their trading hours for these products in the hope of another strong performance. And buyers didn’t disappoint.

Gold ETFs traded on the National Stock Exchange were up 44 percent year-on-year to over Rs6 billion (US$115 million) in value terms. The increase in the number of ETF units traded—which obviously makes better allowance for the increased price of gold of the past year—was up 10 percent, a still impressive performance given that the volume of bullion traded through shops was reportedly down 20 percent or more.

Laying The Foundations In Thailand

While Thailand’s ETF market doesn’t show anything like this level of activity yet, gold is a popular investment locally and gold trackers have obvious growth potential. So it’s no surprise that product providers began focusing on this niche late last year, and April saw the launch of the country’s fifth gold ETF.

The Thanachart Gold ETF doesn’t immediately seem to offer much that is new. Its main distinction from the competition appears to be that it will be the first to invest directly in physical bullion held overseas: three of its peers hold domestic bullion, while the fourth is a feeder into the Hong Kong listing of State Street’s SPDR Gold Shares ETF.  However, Thanachart is one of the country’s largest banking and finance groups, which may help it to attract assets in any case.

The firm has said it is aiming to attract around THB3 billion (US$98 million) in assets into the fund—modest by the standards of some other markets, but roughly three times the AUM of the largest Thai gold ETF at present. No estimated total expense ratio was given, but the three existing domestic bullion ETFs have TERs of 1.2-1.6 percent.

A Double First In Japan

Japan was the busiest market for launches in April, with four new funds coming to market. Early in the month, Simplex listed Japan’s first leveraged and inverse ETFs on the Toyko Stock Exchange. The Topix Bull 2x ETF and the Topix Bear -1x ETF are both based on the broad Topix price return index of Tokyo-listed stocks and carry a total expense ratio of 0.79 percent.

While these were the first ETFs of their type in Japan, they only had the market to themselves for a very short period. The following week, Nomura launched two very similar products, this time on the Osaka Securities Exchange: the Next Funds Nikkei 225 Leveraged and the Next Funds Nikkei 225 Inverse, which are based on the Nikkei benchmark. The TER for these is 0.84 percent.

The Nikkei is an older price-weighted index, while the Topix is a cap-weighted benchmark and more consistent with modern practice in index construction. Consequently, the Topix is usually preferred by long-term investors—however, the Nikkei is often used as the underlying for trading-orientated products, so may well prove to be a more popular choice for ETFs of this type.

Physical Offshore ETFs On The Way For China

There was one low-key new listing in mainland China. Guotai Asset Management listed the SZSE Small and Mid Cap Enterprises 300 Price Index ETF on the Shenzhen Stock Exchange, tracking a basket of smaller growth stocks. This is the second ETF based on this benchmark, following a launch from Guangfa last August, which so far has managed to gather a mediocre RMB915 million (US$145 million) in assets under management. As with most mainland ETFs, the TER is 0.6 percent.


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