ETF Expert Corner

Jerry Hicks Spotlights Perth Mint Physical Gold ETF (AAAU)

August 28th, 2018 by ETF Store Staff

Jerry Hicks, Sales & Business Manager at the Perth Mint, spotlights the Perth Mint Physical Gold ETF (AAAU), the first physical gold ETF backed by a sovereign guarantee.



Transcript

You can listen to our interview with Jerry Hicks by using the above media player or enjoy a full transcription of the interview below.

Nate Geraci: The ETF we're spotlighting this week is the Perth Mint Physical Gold ETF, ticker symbol AAAU. This is the first ETF where the physical gold is guaranteed by a sovereign entity, in this case, the government of Western Australia, and joining us via phone all the way from Australia is Jerry Hicks, Sales and Business Development Manager at the Perth Mint. Jerry, our pleasure having you on the program.

Jerry Hicks: Good morning. Thanks for having me.

Nate Geraci: Jerry, before we get to the ETF, can you just give us some background on the Perth Mint and perhaps the relationship with the government of Western Australia?

Jerry Hicks: Sure. First of all, the Perth Mint was setup back in 1899 when Western Australia was having a bit of a gold rush and we've been refining gold ever since. So at the moment, we refine over 350 tons of gold a year, which is equivalent to around 10 percent of global annual production. Now, the government of Western Australia does fully own Perth Mint and it guarantees us by act of parliament.

Nate Geraci: For people who aren't familiar with Western Australia and sort of the governmental structure there, how does it fit under the government of Australia?

Jerry Hicks: Sure. So, the Western Australia government is a state government as opposed to the federal government of Australia itself. So, that's the important distinction to make between the two. But we are A1+ rated, so that's an equivalent to many of the top banks in the world.

Nate Geraci: Now, what's your specific role with the Perth Mint? What type of responsibilities do you have?

Jerry Hicks: Well, unfortunately for the company, I'm it's face, so having a medium like this to get out to your listeners is ideal. I'm responsible for selling gold around the world. I get out and about to Asia, to Europe, to US, selling physical gold. We're one of the major suppliers of gold to Asia. We're the largest Australian exporter to Germany, would you believe? And we're third or fourth largest supplier of bullion to the US market. So, I'm constantly on the road all over the place really.

Nate Geraci: Alright, so let's talk about the ETF, the Perth Mint Physical Gold ETF, again, ticker symbol AAAU. We know this owns physical gold, so walk us through what makes this ETF unique.

Jerry Hicks: Okay. Well, first of all, with the government guarantee that you mentioned earlier just to give investors that extra bit of peace of mind. There is a sovereign guarantee behind the ETF itself, behind the gold that’s guaranteed by the government. The other major feature that we have is that people can exchange the shares in the ETF for physical gold. Now, as we're dealing directly with the refinery gate, we make a huge range of products for all investors, from small one ounce coins and bars, all the way up to the 400 ounce large bar, like you see in the movies. So, we can deliver that gold to your door. We're already one of the largest distributors of gold in the world, as I said. And this dovetails nicely with what we do already in the distribution business.

Nate Geraci: How does the physical delivery of gold work? So if investors decide they want to exchange their ETF shares and have gold delivered to their door, what's the process look like?

Jerry Hicks: Right. Well first of all, I suggest that your listeners visit our website at AAAUETF.com. They can use our online calculator there to get an indication as to the range of bars and coins that can be exchanged for the shares that they're holding. Once the investor has visited our website and they've got an indication of the number of shares they would need to exchange for the gold, they can then fill in a delivery application form from the website and send it to us. And then we can give them the final quotation for the delivery of the gold. The delivery quote will vary based on how much gold they wanted, what type of gold products they're ordering, and where they want it delivered to. Generally, we can deliver to anywhere in the US where FedEx delivers to. Any delivery of gold up to a value of around 25,000 US dollars is actually FedEx'd to your door.

Nate Geraci: Our guest is Jerry Hicks, Sales and Business Development Manager at the Perth Mint. We're spotlighting the Perth Mint Physical Gold ETF. Jerry, going back to the sovereign guarantee, why do you think that's important and I guess how exactly does this work? So let's say, for example, I don't know, there was some sort of theft of gold. As rare or unlikely as that may be, how does the sovereign guarantee work?

Jerry Hicks: Well, the guarantee itself - guarantee is such an overused word these days - but our guarantee is explicit and enshrined by an act of parliament. So it's extremely clear the responsibilities of the government for our operations, including this ETF. So in the unlikely event that gold was stolen, which exceeded already huge insurance, you have the government of Western Australia standing behind you, which will replace that gold immediately.

Jason Lank: Jerry, this is Jason Lank. On the ETF AAAU, how is the share price determined? I know some of your competitors, perhaps, the share price is an ounce of gold. Others may be some fraction thereof. What are the behind the scenes workings there?

Jerry Hicks: Sure. So we're shadowing, as the other gold ETFs are, the price of gold on international markets. And one share is 100th of an ounce of gold. One other factor to mentioned about our ETF is that we do not hold any US dollars in our funds to cover our management's operational fees. All of our fees will be paid in ounces itself. So, by not holding any US dollars, our tracking error will be minimized compared to typical ETFs, which that may be an interesting factor for your listeners to consider that our ETF will be extremely close to following the actual gold price in the international market.

Nate Geraci: Jerry, for larger investors, probably more institutionally speaking, should they consider where the gold is held and have some diversification there? So you know, talking about some of the other competitors, gold may be stored in vaults in Zurich or New York or London. Should they consider diversification in terms of the underlying gold holdings?

Jerry Hicks: Absolutely. They may well need to consider this as part of the overall portfolio. Now Perth Mint, as well as being one of the world's largest refineries, also has the largest gold vault in the southern hemisphere. And the gold under the ETF will be predominantly stored in Perth in Western Australia. Now, any of your listeners who have been to Australia will certainly vouch for the fact of how far away we are from the rest of the world and it's a great place to store gold, very safe, very physically stable and a long way from anywhere else. It's a great place to store gold.

Jason Lank: Jerry, when the fund was launched, I noticed there's an 18 basis point management fee and in today's landscape, that's very, very, very competitive. What were some of the decisions that went into pricing it so competitively?

Jerry Hicks: We just wanted to offer the best product to invest in. So we wanted to stand out as being unique. Now, the physical delivery is an attractive feature. The government guarantee certainly does make it unique. And the no tracking error also adds to the attention. Now, we can have all of these things separately. To actually combine them into one product and to make it really stand out, that was the most important factor for us.

Nate Geraci: Jerry, we have just a few minutes left. More broadly speaking, can you talk about what you view as the role of gold in a portfolio? What do you view as some of the main reasons investors should consider owning gold?

Jerry Hicks: So, as I'm sure your listeners know, it's a traditional hedge against inflation over the long term. Gold has an important role to play in any portfolio. Typically, any financial advisor would suggest maybe between five and 10 percent of assets be allocated to gold in a typical diversified portfolio. But that's really it. It's a hedge against if everything else is going gangbusters. And at the moment, gold may be fallen in recent months, but we're expecting that should the US dollar not continue to strengthen and begin to weaken and the US share market turns, then certainly gold would come back into favor and be a very popular investment sector.

Nate Geraci I wanted to ask you more about that. I mean, any other thoughts on the current gold market? If you look at gold, it's down close to eight percent year-to-date in dollar terms. I do think that’s surprised some investors, just given some of the political and geopolitical uncertainty, and perhaps some of the inflation metrics beginning to creep up a bit. What could be some potential positive drivers of gold moving forward?

Jerry Hicks: Well, you're quite right. Geopolitical factors have been certainly been very important. With the growth of US share markets and the strength of the US dollar, gold investment has fallen. But we live in an unpredictable world and this is very much a long-term play, not a short-term play. I think that's the most important message for all investors to consider. This is not something that is going to make a huge factor in investments in the short-term. But over 5, 10, 20 years, it will prove very attractive and a very good way of diversifying your portfolio and hedging against any risks.

Nate Geraci: Well Jerry, congratulations on the launch of this new gold ETF. We wish you all the success. Thank you very much for joining us today.

Jerry Hicks: Thank you both very much.

Nate Geraci: That was Jerry Hicks, Sales and Business Development Manager at the Perth Mint. Again, the ETF is the Perth Mint Physical Gold ETF. And, as Jerry mentioned, you can learn more about this ETF by visiting AAAUETF.com.