Credit Suisse X-Links Gold Shares Covered Call ETN
The GLDI Gold ETF offers a unique approach to gold investment by incorporating a covered-call strategy, combining shares of the GLD physical gold ETF with one-month call options that have a strike price set at 103% of GLD's price. This approach generates income from the premiums of the call options, adding a yield component to an asset that typically does not produce income. The ETF's index simulates holding a position in GLD while maintaining a short position in the call options, which are renewed monthly. This strategy results in monthly yield distributions, characteristic of an Exchange-Traded Note (ETN), and involves subtracting the premiums from the index's value.
While this covered-call strategy can enhance yield, it comes at the expense of potential upside gains, meaning GLDI's performance can diverge significantly from the spot price of gold. This makes GLDI a suitable option for investors seeking income rather than pure exposure to gold's price movements. Prior to May 31, 2024, Credit Suisse AG was the issuer and counterparty credit risk of the ETN. The GLDI ETF provides a way to gain exposure to gold while benefiting from the additional income generated through the covered-call strategy, offering a differentiated investment choice within the gold segment.
$157.80
Change: ($0.5) 0.32%Expense Ratio: 0.65%
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Expense Ratios vs Storage Fees
Expense ratios are annual fees linked to the management and operation of ETFs. These costs, while seemingly small, can have a substantial impact on the fund's net returns over time.
For physical gold, storage fees are incurred to maintain the security of the bullion. These fees are generally fixed and can provide a clear cost structure, helping investors manage expenses better. Evaluating these costs is essential for making an informed investment decision.
Expense Ratio for GLDI
| Years | Net Investment | ETF Fees 0.65% (avg) | OneGold Storage 0.12% (Gold) | Assumes 8% expected return |
|---|---|---|---|---|
| 1 | $15,000 | $65.00 | $12.00 | Initial Investment = $10,000 |
| 2 | $20,000 | $172.48 | $31.91 | Yearly Investment = $5,000 |
| 3 | $25,000 | $328.57 | $60.90 | |
| 4 | $30,000 | $540.11 | $100.29 | |
| 5 | $35,000 | $814.69 | $151.56 | |
| 6 | $40,000 | $1,160.74 | $216.33 | |
| 7 | $45,000 | $1,587.62 | $296.43 | |
| 8 | $50,000 | $2,105.70 | $393.90 | |
| 9 | $55,000 | $2,726.47 | $510.97 | |
| 10 | $60,000 | $3,462.64 | $650.14 | |
| 20 | $110,000 | $21,126.75 | $4,043.72 |
For investors comparing the GLDI Gold ETF to OneGold, it’s important to consider associated fees and net investment over time. Let's analyze the cost implications over a twenty-year period, assuming an 8% expected return, which matches gold’s approximate annual rate of return since 1971.
Comparsion of Fees
ETF Fees: The GLDI Gold ETF has an average fee of approximately 0.65%, which results in a significant cumulative fee over time. By year 20, the total fees paid to the ETF would amount to $21,126.75.
OneGold Storage Fees: On the other hand, OneGold charges a lower storage fee of 0.12% of the gold's value. Over the same twenty-year period, the total storage fees paid to OneGold would be $4,043.72. This results in a net savings of $17,083.03 when compared to the GLDI ETF.
Understanding ETF Risks, Taxes, and Hidden Fees
One key aspect to consider is the differing tax rates associated with various ETFs. The tax implications can significantly affect your net returns depending on the ETF’s underlying assets. Additionally, trading platforms often impose fees for purchasing ETFs, and these fees can vary considerably. It is essential to account for these costs, as they can diminish your investment returns if overlooked.
Another critical risk is the possibility of ETF closures. When an ETF shuts down, investors are typically required to liquidate their holdings, potentially at a loss if the market is down. This highlights the importance of thoroughly researching the stability and track record of an ETF before investing. Understanding the management and historical performance of an ETF can help mitigate these risks.
Advantages of Holding Real Gold for Liquidity
Holding physical gold bullion provides investors with significant liquidity, allowing for easy conversion to currency or other tangible assets as needed. Unlike some ETFs, which do not offer direct ownership of the underlying gold, owning physical gold ensures that you have direct control over your assets. This can be particularly beneficial during economic instability, as gold generally maintains its value better than many other assets.
Some ETFs advertise the option to exchange shares for physical gold, but this often comes with strict requirements and hidden terms. Investors should carefully examine these conditions to ensure they align with their objectives. Choosing a transparent vaulted gold option, such as OneGold, offers a more straightforward approach to accessing your assets, avoiding the complexities and uncertainties of some ETF arrangements.