Investec launched an exchange traded note (ETN) on Thursday to help investors reduce the volatility of the rand when buying gold.
The Investec Gold ETN was officially listed on the main board of the JSE under the exchange traded products sector.
“This new investment product is unique in that it offers investors an opportunity to invest in the movements in the (United States) dollar price of gold without having to also factor in the volatile rand,” said Brian McMillan, head of Investec structured products.
An ETN is a contractual obligation made by an issuer to pay the holder a return which may be linked to, for example, an interest rate, the performance of one or more shares, an index, an exchange rate or a commodity.
McMillan said by closely tracking the underlying gold price as fixed in London daily, the Investec Gold ETN gave investors the ability to trade a product in rand while closely tracking the percentage moves of the US dollar gold price.
“For example, if the price of gold is at US1750 per ounce in London, the ETN will trade at R175 (one-tenth of an ounce), and as the price of gold moves to US1850, the price of the ETN will rise to around R185.”
Previously, investors had no choice but to hedge out the effects of the rand if they wanted pure gold exposure.
“Historically, the gold price and the rand have been negatively correlated, and using existing gold products many investors found that though they had made significant gains in the gold price, on many occasions this was negated by the rand's move,” said McMillan.
He said the Gold ETN was designed to give investors access to an easy-to-trade instrument through the main board of the JSE, and it also had what was known as a “quanto” feature, to provide protection against exchange-rate risk. - Sapa