Sluggish growth in China since the beginning of the year, the oil market turbulence and concerns over global growth slowdown have lifted the demand for safe-haven assets like gold. The weakness in the global financial markets has helped the precious metal to recover its sheen in 2016.
Gold has gained more than 16% year to date. The jump in gold prices was also supported by plunging interest rates on a global scale. With the Fed not expected to raise interest rates in the near term, the rally is expected to continue.
Given the tailwinds, it's not surprising that BlackRock (NYSE:BLK) has chosen to increase its stake in gold. But what's surprising is that to do so, it has opted for a competitor's ETF, the SPDR Gold Trust ETF (NYSEARCA:GLD), instead of its own product, the iShares Gold Trust ETF (NYSEARCA:IAU).
As per the SEC filing, BlackRock has increased its holding in GLD to 13%, worth almost $4 billion. This is a massive increase from a 5% stake disclosed in a regulatory filing last month. GLD is the largest and most popular ETF in the gold space, with AUM of $31.3 billion and average daily volume of about 8.1 million shares. The fund reflects the performance of the price of gold bullion. Its expense ratio comes in at 0.40%. The fund currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
In comparison, IAU has AUM of $7.7 billion and trades in solid volume of more than 7.5 million shares a day, on average. The ETF charges 25 bps in annual fees. Like GLD, this ETF offers exposure to the day-to-day movement of the price of gold bullion and carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
BlackRock's gold ETF made headlines earlier this month when it had to temporarily suspend creations. As per a Reutersreport, it sold $296 million in shares of the exchange-traded fund without properly registering them with the SEC. After recognizing the slip, BlackRock stopped selling new shares of the fund.
Though this is not the first time an asset manager has invested in a competitor's product and included it in the portfolio, BlackRock's choice of increasing its holding in GLD emphasizes the craze for gold in the market. While IAU has a lower expense ratio as compared to GLD, GLD trades in much higher volumes, keeping the bid/ask spread low, and has a much larger asset base.