Royal Bank of Scotland unveiled its third exchange-traded note in the U.S. market today, rolling out a product that shifts exposure between gold bullion and low risk Treasuries depending on the recent performance of the precious metal. The RBS Gold Trendpilot ETN (TBAR) will be linked to an index that invests in gold bullion when the metal’s price closes above the 200-day simple moving average for at least five consecutive sessions. When gold is below that threshold for five consecutive sessions, the index to which TBAR is linked will provide exposure to 3-month Treasury bills.
The new exchange-traded note is the third in the RBS suite, and the first to offer exposure to commodities. RBS has recently rolled out funds that follow a similar methodology in the domestic equity space, switching exposure between large cap stocks (TRND) and mid cap stocks (TRNM) depending on position relative to a simple moving average. Because the Trendpilot products are structured as exchange-traded notes they may allow investors to avoid some of the common drawbacks of trend-following strategies, such as incurring transaction costs whenever positions are shifted or incurring short-term capital gains taxes when altering the notional exposure.
Similar to other RBS ETNs, TBAR also features a unique expense structure; when the index is invested in gold, expenses will accrue at a rate of 1.0% annually. When the benchmark is invested in cash, expenses will accrue at 0.50% per annum. While investors can achieve exposure to gold for as little 0.25% (through IAU) and to Treasuries for as little as nine basis points, TBAR may have appeal for investors looking to implement a low maintenance strategy or avoid the potential drawbacks of trend following by combining such a strategy with the structural nuances of ETNs.
Gold ETF Options
The introduction of TBAR gives investors another option for accessing gold bullion through exchange-traded products. Physically-backed options include the cost-efficient IAU, the second largest U.S.-listed ETF by total assets in GLD, the Switzerland-vaulted SGOL and the Singapore-vaulted AGOL. There are also multiple futures-based gold ETP options, including DGL and UBG. UBS also offers a unique option that combines exposure to the S&P 500 with a gold hedge through the E-TRACS S&P 500 Gold Hedged ETN (SPGH).
Disclosure: No positions at time of writing.
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