01—Abstract
Summary
Summary of the 10-K filed February 28, 2019. Cited figures are marked; the original filing is the authoritative source.
iShares Gold Trust (IAU) reported a year of growth in assets but a net loss in its FY2018 10-K filed February 28, 2019.
Net assets rose 13.77% to $11.54 billiona at December 31, 2018, from $10.15 billion a year earlier, driven mainly by net share creation: 125.3 million net new shares were issued, bringing shares outstanding to 940.2 million. The NAV per share fell 1.37%, from $12.45 to $12.28, tracking a 1.15% decline in the LBMA Gold Price AM. The trust reported a net decrease in net assets from operations of $198.1 million, driven by a $194.1 million unrealized loss on gold bullion and $27.5 million in Sponsor's fees, partly offset by a $23.5 million realized gain.
The trust is a passive, grantor-trust vehicle that holds only physical gold, custodied by JPMorgan Chase Bank N.A. (London branch), with The Bank of New York Mellon as trustee and iShares Delaware Trust Sponsor LLC (a BlackRock subsidiary) as sponsor. The Sponsor's fee is 0.25%b annually, and the trust has no income, so it must sell gold to pay expenses.
That structural drag is the core ongoing cost for holders: each share represents a steadily shrinking amount of gold unless the gold price rises enough to offset it. The filing also highlights risk factors around custody, limited custodian liability, reliance on the LBMA Gold Price PM benchmark, and limited investor protections, since the trust is not a registered investment company or commodity pool. For investors, the filing shows a trust that gained scale through inflows but whose share price tracks gold closely and absorbs a 0.25%c annual cost.
Results are dominated by the gold price, and the 2018 figures show that without a gold price gain, the trust's NAV declines. The filing reports no distributions, no employees, and no material legal proceedings, and it includes an unqualified audit opinion from PricewaterhouseCoopers LLP with effective internal controls.
02—Key points
Key Highlights
- Net assets increased 13.77% to $11,544,738,146 at December 31, 2018, up from $10,147,507,137 in 2017, driven primarily by net share creation.
- NAV per share declined 1.37% to $12.28 (from $12.45), in line with a 1.15% decline in the LBMA Gold Price AM to $1,281.65.
- Net decrease in net assets from operations was $198.1 million, reflecting a $194.1 million unrealized loss on gold bullion and $27.5 million in Sponsor's fees.
- Shares outstanding rose to 940.2 million from 814.9 million, with 247.0 million shares created and 121.7 million redeemed during 2018.
- Sponsor's fee is 0.25% per annum of NAV ($27.5 million in 2018), the trust's only ordinary expense, paid by selling gold because the trust has no income.
- Trust holds about 9.0 million troy ounces of gold, custodied by JPMorgan Chase Bank N.A. (London), with trustee BNY Mellon and sponsor iShares Delaware Trust Sponsor LLC (BlackRock).
- Auditor PricewaterhouseCoopers LLP issued an unqualified opinion on the financials and on effective internal control over financial reporting, with no material legal proceedings reported.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 28, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Operating Expenses | $27.53M$21.63M | +27.3% |
| Operating Income | -$27.53M-$21.63M | −27.3% |
| Net Income | -$198.12M$881.86M | −122.5% |
| EPS (Basic) | $-0.44$2.46 | −117.9% |
05—Questions
Frequently Asked Questions
Why did the trust's NAV per share fall in 2018 even though its net assets grew?
Net assets grew mainly because of share creation, but NAV per share is calculated per share. It fell 1.37% (from $12.45 to $12.28) because the gold price fell 1.15% and the Sponsor's fee of 0.25% per year reduces the gold backing each share over time.
How does the Sponsor's fee affect my investment?
The trust pays a 0.25% annual fee, accrued daily and paid monthly, which is $27.5 million in 2018. Because the trust has no income, it sells gold to pay this fee, so each share represents slightly less gold over time. Investors need the gold price to rise enough to offset this decline.
Are investors protected like mutual fund shareholders?
No. The trust is not registered under the Investment Company Act of 1940 and is not a commodity pool under the Commodity Exchange Act, so shareholders lack the protections those regimes provide. The custodian is liable only for losses caused by its negligence, fraud, or willful default, and shareholders cannot bring claims directly against the custodian.
Can shares trade at a different price than the value of the gold they represent?
Yes. Shares can trade at a premium or discount to NAV, influenced by non-concurrent trading hours between NYSE Arca and the major gold markets and by market supply and demand. Authorized Participants can create and redeem Baskets of 50,000 shares to help limit large deviations, but this arbitrage mechanism can fail if creation or redemption is disrupted.
Can investors redeem shares directly for gold?
Not directly. Only Authorized Participants can create or redeem shares, and only in Baskets of 50,000 shares. Redemptions can be suspended only when NYSE Arca trading is halted or an emergency makes gold delivery impracticable. Individual investors must sell their shares on the exchange.
06—Continue