01—Abstract
Summary
Summary of the 10-K filed February 24, 2017. Cited figures are marked; the original filing is the authoritative source.
iShares Gold Trust (IAU) ended 2016 with net assets of $7.31 billiona, up from $5.21 billion a year earlier, a 40.31% increase.
Most of that growth came from investor inflows rather than market performance alone: the Trust created 314.85 million Shares (6,297 Baskets) and redeemed 167.95 million Shares, lifting shares outstanding from 508.1 million to 655.0 million. NAV per Share rose 8.88%, from $10.25 to $11.16b, tracking a 9.12% gain in the LBMA Gold Price AM over the year. The Trust is passive, holds only gold bullion, and charges a 0.25% annual Sponsor's fee ($20.3 million in 2016), which is paid by selling gold, so each Share represents slightly less gold over time.
The filing also flags a compliance issue. Between February 19 and March 3, 2016, the Trust sold 24.9 million Shares, but only 20.1 million of those were unregistered excess Shares; the rest were covered by the 2015 registration statement. The Trust suspended issuance on March 3, 2016 after discovering the error and filed a new shelf registration.
The excess Shares may carry rescission rights for purchasers, which could require the Trust to repurchase them with interest or pay damages. The risk is contingent and no amount is recorded, but investors should be aware of it. Operationally, the Trust reports no legal proceedings, effective internal controls audited by PricewaterhouseCoopers, and an unqualified audit opinion dated February 24, 2017.
The key driver for IAU holders is gold price exposure. Fiscal 2016 showed a strong rebound after 2015's decline, with the net increase in net assets of $308.7 millionc driven mainly by $304.0 million in unrealized gains on gold. Investors should note that the Trust's Shares may trade at a premium or discount to NAV, and that the LBMA Gold Price PM benchmark replaced the London PM Fix in March 2015.
02—Key points
Key Highlights
- Net assets grew 40.31% to $7.31 billion at year-end 2016, driven mainly by net share creation (655.0M shares outstanding, up from 508.1M).
- NAV per Share rose 8.88% to $11.16, closely tracking the 9.12% gain in gold prices; the Trust's 0.25% fee causes a slight underperformance versus gold.
- Net income of $308.7 million ($0.46 per Share) came from $304.0 million in unrealized gold gains and $25.1 million in net realized gains.
- Sponsor's fee of $20.3 million (0.25% of average net assets) was the only expense, paid by selling gold, which steadily reduces the gold backing each Share.
- Excess Share issue: 20.1 million Shares were sold before being registered under the Securities Act, creating potential rescission rights and regulatory penalty risk.
- Trust reported effective internal controls, a clean PwC audit opinion, and no legal proceedings; 399,243 holders of record and no distributions were paid.
- Benchmark change: the LBMA Gold Price PM replaced the London PM Fix in March 2015, and the Trust is subject to FCA regulation of the benchmark, which the filing identifies as a risk factor.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 24, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Operating Expenses | $20.31M$15.25M | +33.2% |
| Operating Income | -$20.31M-$15.25M | −33.2% |
| Net Income | $308.74M-$762.12M | +140.5% |
| EPS (Basic) | $0.92$-2.80 | +132.9% |
05—Questions
Frequently Asked Questions
How did IAU perform in 2016, and what drove the change in net assets?
NAV per Share increased 8.88%, from $10.25 to $11.16, following the 9.12% rise in gold prices. Net assets grew to $7.31 billion from $5.21 billion, mostly because of $1.79 billion in net share creations, along with $308.7 million in net investment results.
Does IAU pay dividends or distributions?
No. The Trust made no distributions to Shareholders in 2016 or 2015 and has no obligation to make periodic distributions. Returns come only from changes in the value of gold held by the Trust.
What are the main costs of holding IAU?
The only ordinary expense is the Sponsor's fee, accrued at 0.25% of NAV annually. It was $20.3 million in 2016. The Sponsor pays most other administrative costs, but taxes, extraordinary legal costs above $100,000 per year, and indemnification-related liabilities are borne by the Trust.
What is the excess Shares issue, and could it affect investors?
Between February 19 and March 3, 2016, the Trust sold 20.1 million Shares that were not covered by an effective registration statement. Purchasers of those Shares may have rescission rights, which could force the Trust to buy them back at cost plus interest, possibly requiring gold sales at unfavorable prices. The filing does not record a liability, and the Trust suspended issuance on March 3, 2016 and filed a new registration statement.
Why might IAU's share price differ from the gold value per Share?
Shares can trade at a premium or discount to NAV because of supply and demand and because the NYSE Arca trading hours extend beyond the close of major gold markets, which can widen spreads. Authorized Participants can create or redeem Baskets of 50,000 Shares for gold, which provides an arbitrage mechanism that limits these gaps.
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