iShares Gold Trust (IAU)

iShares Gold Trust (IAU) Overview:

Profile:

IAU is an exchange-traded fund (ETF) that tracks the price of gold bullion. It primarily invests in physical gold bars held in a trust, offering investors exposure to gold without directly buying the physical metal. IAU is passively managed, aiming to replicate the performance of the gold spot price.

Objectives:

The primary objective of IAU is to provide investors with a convenient and cost-effective way to gain exposure to gold. This can be for various purposes, such as portfolio diversification, hedging against inflation, or benefiting from potential increases in the price of gold.

Issuer:

BlackRock, Inc. (BLK) is the issuer of IAU. BlackRock has a strong reputation as the world’s largest asset management firm, with over $10 trillion in assets under management. The firm has a proven track record and experienced management team.

Market Share:

IAU is the most popular and heavily traded gold ETF globally, with a market share of over 65% in the U.S.

Total Net Assets:

As of November 27, 2023, IAU has over $57.5 billion in net assets.

Moat:

IAU has several competitive advantages:

• Liquidity: It is the most actively traded gold ETF, ensuring investors easy entry and exit from their positions.
• Low cost: IAU has an expense ratio of 0.25%, making it one of the least expensive gold ETFs in the market.
• Physical gold holdings: IAU directly owns physical gold, which offers investors greater security and transparency compared to ETFs backed by gold futures contracts.

Financial Performance:

IAU's historical returns have closely tracked the spot price of gold. Its performance over the past 3 years has been:

• Year 1: +33.5%
• Year 2: -8.2%
• Year 3: +1.7% (as of November 27, 2023)

Benchmark Comparison:

IAU has outperformed its benchmark, the Gold Price Index by HSBC, over most time frames. This can be attributed to its low expense ratio and its efficient tracking of the gold spot price.

Growth Trajectory:

The demand for gold as a safe haven asset during times of market uncertainty can drive IAU’s growth. Additionally, its low cost and wide availability attract investors looking for pure gold exposure, further supporting growth potential.

Liquidity:

IAU boasts an average daily trading volume exceeding 25 million shares, offering high liquidity and ease of buying/selling. The bid-ask spread is typically minimal, further enhancing its liquidity and cost-efficiency.

Market Dynamics:

• Economic instability and geopolitical tensions can drive gold prices higher, impacting IAU’s performance positively.
• Rising inflation erodes purchasing power, making gold an attractive hedge, benefiting IAU.
• Increasing interest rates and a strengthening dollar can negatively impact gold prices and, consequently, IAU's value.

Competitors:

Key competitors in the gold ETF space, along with their market share and ticker symbols:

• SPDR Gold Trust (GLD) - 18%,
• VanEck Merk Gold Trust (OUNZ) - 7%,
• Aberdeen Standard Physical Gold Shares ETF (SGOL) - 2%.

Expense Ratio: IAU has an expense ratio of 0.25%

Investment Approach and Strategy:

• IAU tracks the price of gold bullion through physical gold holdings, ensuring close alignment with gold price movements.
• It does not hold derivatives or other complex investments, making the strategy straightforward and easily understood by investors.

Key Points: Benefits:

• Convenient exposure to gold without physically owning it.
• Cost-effective investment with a low expense ratio.
• Highly liquid with easy buying and selling.
• Diversifies investment portfolios.

Risks

• Volatility: Gold prices can fluctuate significantly, leading to price swings in IAU.
• Market risks: The gold market is susceptible to economic and political influences, impacting IAU.
• Counterparty risks: Risks associated with the custodian storing the physical gold.

Who Should Consider Investing:

Investors who seek:

• Diversification beyond traditional asset classes.
• A hedge against inflation and economic instability
• Potential for capital gains from gold price increases