Inside 2013's Best Gold ETF

Gold saw the worst year in more than a decade in 2013 falling a massive 28%.  The popular SPDR Gold Trust ETF, (GLD), designed to deliver the return of the spot gold price plunged 27% while the Market Vectors Gold Miners ETF (GDX) shed 52% last year. The latter put up with more pain as it often trades as leveraged plays on this yellow metal.

Not only these two ultra-popular Gold-related funds, but nearly every other gold product lost in the range of 27–28% this year. These include a variety of funds and there are several popular choices.

Beyond GLD, these include the iShares COMEX Gold Trust (IAU) which tracks the spot price of gold, Physical Swiss Gold Shares (SGOL) that holds physical gold bullion bars of secure vaults in Zurich, Switzerland, Physical Asian Gold Shares (AGOL) – an option to play on gold outside Western countries by holding bars in secure vaults in Singapore.

Investors also have a futures based option, thanks to the PowerShares DB Gold Fund (DGL). This product tracks the performance of the DBIQ Optimum Yield Gold Index Excess Return plus the interest income from U.S. Treasury bills.

Among this pack of underperformers, only one product the RBS Gold Trendpilot ETN (TBAR) stood out as a winner being largely unruffled by the gold slump in 2013 and losing only 4.8%. Let’s dig a little deeper and find what‘s behind TBAR’s perseverance amid the gold collapse.

Why is TBAR Breezing Past its Gold Cousins?

The key to TBAR’s success was that this unusual debt instrument looks to track the price of gold up to a certain limit. Unlike physically backed Gold ETFs, this fund provides exposure to the Gold Trendpilot Index.
The index is exposed either to the price of the gold bullion or the cash rate, subject to the relative performance of gold price on a simple historical moving average basis.

The gold price at or above the historical 200-Index business day simple moving average for five successive business days is considered as a positive trend and the ETN tracks the spot price of gold.

Alternatively, a gold price below such an average calls for a negative trend, which was basically the case in 2013. In such cases, the index tracks the cash rate, which is the yield, derived from a hypothetical notional investment in 3-month U.S. Treasury bills.

This means TBAR did not reflect the return of the price of gold bullion in most of 2013, rather it tracked treasury bonds. The product will mirror the performance of gold only when the positive trend is confirmed. This dual exposure strategy helped TBAR outperform all other products relying solely on the spot price of gold.

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