I spent some time this morning looking deeper into the ETF, not because SD readers are likely to be interested, but to examine how the fund will operate.
Upon my research conclusion, you just wonder who in their right mind would invest in such an ETF. If you want a currency hedge, the solution remains the same, just buy the PHYZZ and take possession!
From Hang Seng
IMPORTANT RISK WARNINGS / FUND INFORMATION FOR HONG KONG INVESTORS
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Hang Seng
RMB Gold ETF (the "Fund") is to provide investment results denominated
in Renminbi ("RMB") that, before fees and expenses and other hedging
costs, closely correspond to the performance of the London Gold Fixing
Price in US dollars ("USD"). The Fund will seek to hedge against the
foreign exchange rate movements between RMB and USD so that its
performance in RMB will, before fees and expenses and other hedging
costs, track the performance of the London Gold Fixing Price in USD as
closely as possible. The performance of the Fund is not
expected to be materially affected by the foreign exchange rate
movements between RMB and USD. However, investors will be subject to
the foreign exchange rate risk when they realise their investment and
convert the RMB proceeds into other currencies (for example HK
dollars).
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The trading price of
the Fund's units on The Stock Exchange of Hong Kong Limited will be
subject to market forces and may deviate significantly from the Net
Asset Value per Unit.
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The Fund primarily
invests in gold bullion. There is no guarantee that the price of gold
bullion will appreciate. The Fund may experience greater volatility
and may be adversely affected by the performance of industries and
sectors or events related to gold and to its production and sale and
will cause a fall in the price of the Fund.
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The custody of gold
bullion for the Fund is different to custody arrangements typical in
mutual funds/unit trusts which invest in equities and bonds. Among
which include, but not limited to, the gold bullion held by the
Custodian may be lost or damaged and such gold bullion may not be
insured.
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The Fund is
denominated in RMB which is currently not freely convertible and is
subject to exchange controls and restrictions. The Fund is subject to
risks associated with RMB including RMB foreign exchange risk, RMB
hedging risk, offshore RMB market risk and RMB trading and settlement of
Fund's units risk.
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The London Gold
Fixing Price is quoted in USD. The Fund will enter into a series of
swaps with the Swap Counterparty to hedge against the foreign exchange
rate movements between RMB and USD. In the event of an insolvency or
default by the Swap Counterparty, the Fund may be exposed to RMB/USD
foreign exchange risk on an unhedged basis.
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The Fund is also
subject to tracking error risks, risks associated with passive
investments and risks of concentration in a particular commodity (i.e.
gold).
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Investment involves risks and investors may lose a substantial part of their investment in the Fund.
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Investors
should not only base on this marketing material alone to make the
investment decision, but should read the Fund’s offering documents
(including the full text of the risk factors stated therein) in detail.
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