NewGold Exchange Traded Fund (ETF)

The Newgold ETF (JSE code GLD), issued by Absa Capital, is the most successful South African ETF measured by size. First listed on the JSE in November 2004, it now has 136 million shares in issue, with a market capitalisation of over R17 billion. The ne

The NewGold ETF continuously tracks the price of gold bullion on international markets, by holding physical gold bullion equivalent to the value of securities in issue. NewGold currently holds in depository storage in London, some 1318941 fine troy ounces of gold bullion. As the value of this gold hoard rises and falls, so does the value of the NewGold GLD securities, thus providing investors with a participatory interest in a gold bullion portfolio.

The NewGold securities are listed and trade in rands on the JSE. Given the foreign exchange control restrictions which prevent transactions in physical gold bullion in South Africa (except for registered jewellers and industrial users of gold), NewGold provides an opportunity for local investors to gain direct exposure to the gold bullion price.

Since its listing in late-2004, NewGold has provided outstanding performance. To 29^th February 2012, the NewGold ETF has provided an annual return of 24,14%, since inception, or a cumulative return of 387,8%.

The Table below puts the performance of the NewGold ETF in perspective compared with all other Unit Trusts and ETFs over periods of 1-5 years.

NewGold appears amongst the top two performers (out of some 900 unit trusts and ETFs) for all except one (3 years) of the periods shown above. This performance is often ignored, as many Performance Surveys do not recognise NewGold as an ETF, because of its debenture structure. However, NewGold has exactly the same ring fenced trust structure as any Collective Investment Scheme and also has the benefit of being JSE listed and regulated. Accordingly, it should always be considered when the performance of investment products freely available to retail investors are considered.

The NewGold ETF has some unique features, which are worth considering in gauging its suitability for investment portfolios.

• Gold as a primary metal, with certain monetary uses and investment merits, tends to act in a contra-cyclical nature to most other investment asset classes, making it ideal as a hedge product. The oft repeated mantra is that “when markets zig, gold zags.”

• Gold, together with other commodities, is always worthy of consideration in long-term investment portfolios because it adds diversification and some alleviation of risk, through reduction in overall cyclical volatility of a portfolio.

• With gold and other mining shares, often suffering from safety, labour, regulatory and other State intervention issues in South Africa, direct exposure to commodities through Exchange Traded Products, such as NewGold is becoming the preferred point of entry, particularly for institutional investors.

• NewGold’s listing on the JSE means that it can be purchased or sold at any time during the JSE trading day, thereby enabling local investors to take advantage of intra-day changes in the gold price on international markets. Absa Capital provides market making facilities to ensure that there is always liquidity in the product.

• As a rand denominated investment on the JSE, investment in NewGold does not impact on the foreign exchange allowances of individual and corporate investors. For institutional investors, prudential guidelines for foreign investments still apply.

• NewGold complies with Shari’ah principles of ethical investment under Islamic Law.