Amid Turbulent Times, SPDR Gold Shares Emerge as World's Largest ETF

(August 23, 2011) — State Street Global Advisors’ (SSgA) gold exchange-traded fund has become the biggest ETF in the industry.

The company announced that its gold ETF — with $76.7 billion in assets as of August 19 — gained 16.35% over the last month, 23.55% over the past three months, and 29.72% year-to-date.

The superior performance of the ETF reflects the fact that gold has historically performed well during times of financial and economic stress as a result of investors seeking alternative stores of wealth to hedge against inflation. Industry sources note that because commodities like gold are generally uncorrelated to the movements of stock and bond markets, they serve as helpful diversification tools, consequently driving up the popularity of the asset class.

While gold has enjoyed rising popularity amid volatile markets, some investors have become more skeptical about embracing the asset. In the face of a weakening in the US dollar in recent years, the billionaire investor and philanthropist George Soros had increased his stake in gold, silver and other precious metals. Yet, in early May, according to the Wall Street Journal, Soros’s New York-based $28 billion hedge fund — Soros Fund Management — decreased its holdings of the SPDR Gold Trust by 4.7 million shares to 49,400 shares, valued at $6.9 million at March 31.

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The news was discouraging to gold investors because Soros has been perceived as a leader in pursuing gold over the past two years, according to Mark Luschini, chief investment strategist at Janney Montgomery Scott, a regional broker-dealer. “Anytime someone of that prominence and success from an investment management standpoint makes such a change in allocation, many investors are likely to follow,” he told aiCIO, adding that for a typical investor, gold is still a smart standalone investment when around 3-5% of a portfolio.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Research conducted by Russell Investments warns that the growing trend for mergers among Australia's industry superannuation funds may not be serving the best interests of members.

(August 23, 2011) — A recent report by Russell Investments asserts that the burgeoning trend for mergers among industry superannuation funds may not be serving the best interests of members.

The report — titled “Future Proofing for Industry Funds” — states that while Australia’s superannuation funds merge to create scale and cost efficiencies, members may be better served through mutually beneficial partnerships with other funds. According to Russell’s managing director of industry and government funds Michael Clarke, some mergers may be successful in delivering economies of scale, but over a certain point, complexity can be added because larger asset pools pose additional challenges.

“Growing the volume of funds under management (FUM) and then members you think would deliver more scale economy, but the demonstrated experience is that was not achieved between 2004 to 2010,” Clarke says in the report. “So I am highlighting the fact that achieving economies of scale or what you would hope to get really is something that’s got to be achieved through business strategy and directly targeted. It doesn’t just come with growth and it is quite difficult to get those outcomes.”

The challenges associated with mergers, according to Clarke, include increases in technical governance skills required by trustees as investment complexity grows; accessing increased numbers of managers with growing monitoring and implementation costs; the costs of growing internal investment teams; and the challenges associated with accessing and managing global asset portfolios.

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Additionally, the paper notes that funds are most efficient at roughly one million members and $20 billion in assets.

“We’re not saying mergers are never appropriate, but rather funds should be aware alternatives exist that have the potential to deliver better member outcomes,” Clarke says, adding that he encourages funds to consider tailored outsourcing partnerships as an alternative.

Click here to see GC Australia — a sister publication to aiCIO — that focuses on the Australian superannuation and alternative fund industry, from a securities services perspective.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742