IAU Split Reveals iShares Exasperation
When ETF investors think about gold, the first ticker that springs to mind is GLD – the SPDR Gold Trust. This is a source of great annoyance to iShares. They would much prefer that you buy their near-identical iShares COMEX Gold Trust (IAU), which is a distant runner-up in the asset race. In fact, it’s barely even a race. GLD currently has about $38 billion worth of gold in storage, while IAU only has about $3.3 billion. Other players like ETFS Physical Swiss Gold Shares (SGOL) are even further behind.
We see here a good example of first-mover advantage in ETF marketing. GLD came out in November 2004, and as the first such product made quite a media splash at the time. IAU came along a few months later, but by then the ticker GLD was firmly imprinted in trader’s minds. It doesn’t hurt that the letters G-L-D spring to mind a lot faster than I-A-U when you want to buy G-O-L-D.
While iShares is still the leader in overall ETF assets, new owners BlackRock apparently want to dominate each individual segment as well. To that end, the firm recently announced a 10-for-1 split in IAU shares. The split will be effective after the close on June 21, 2010.
As in stocks, ETF share splits do nothing to directly increase the value of your investment. Instead of owning one $120 share, you will have ten $12 shares. So why is iShares doing it? The lower price may enhance liquidity, since smaller players will be able to take advantage of the creation/redemption mechanism. On the other hand, large investors who typically pay trading commissions at a per-share rate will actually be encouraged to abandon IAU for GLD – which will still have a share price in the $120 range.
Maybe I am missing something here, but to me it looks like iShares is flailing. Someone at the top is annoyed to be so far behind SPDR in this asset class, and they can’t figure out any other ways to distinguish their offering. The supreme irony is that if the split does somehow help IAU attract assets, SPDR can simply execute the same kind of split in GLD.
Disclosure covering writer, editor, and publisher: Long GLD. No other positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.