19 April 2011

Ambivalent about taking delivery

So "Tocqueville Gold Fund manager John Hathaway was ambivalent about the necessity for the University of Texas' endowment to take delivery of its gold investment" according to GATA. Of course he is, the last thing gold fund managers want is institutional investors realising that they can store gold themselves for 0.10%.

To be fair, Tocqueville only holds 5% of its fund in physical gold so the 1.35% management fee you are paying him is for stock selection.

Ben Davies' Hinde Gold Fund however "holds at all times between 75% and 100% of its assets in allocated gold in secure vaults in a leading Swiss private bank, Julius Baer" with a management fee of 1.5% and performance fee 20%. If we assume Hinde is getting similar rates for its gold, then his effective management fee for the 25% which are stocks is 5.7%

For example, if you are investing $100m, then Hinde is charging you $1,500,000 a year. But you could store $75m worth of the gold yourself at 0.1% = $75,000, so you are really paying $1,425,000 management fee on $25m, which equals 5.7%.

It will be interesting to see how Davies, Sprott and the ETFs deal with this. My guess is not talk about it. If you are an insitutional investor of size who does not have a legal restriction on holding physical gold, then you'd be stupid to not hold allocated directly.

As Bloomberg note "By comparison, the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, charges a management fee of 0.4 percent of invested assets. That would reach almost $4 million for the Texas fund." A couple of years at $4m is enough to build your own vault!

From that same article is an amusing statement from Ralph Preston of  Heritage West Financial, a futures trading firm: “The call to take delivery is more of a challenge to the system and it borders on the anarchistic ... It’s poor sportsmanship.” It sure is Ralph, I mean how are you going to earn brokerage every time an investor needs to roll their futures if they don't have futures.

Taking delivery is poor sportsmanship, what a joke. That takes talking your book to new heights.


  1. Bron, that's a great point that has been overlooked with the UTIMCO story. The storage savings really shows one of the main reasons they chose to take delivery rather than buy an ETF or futures. It will be interesting to see if other large investors follow UTIMCO's lead.

  2. Bron,

    Is there a way an individual investor can get storage fees of 0.1% for allocated? The best I've ever seen is BullionVault at 0.12%, but that's not exactly allocated. More normal is 1-1.5%, in my experience.