GLOBAL - Julius Baer has created a structured version of its Physical Gold Fund, available to pension funds and other institutional investors.
The ETF offers 95% capital protection provided by Nomura, and has a high participation level due to the current price of gold. The ETF is fully replicated, with the underlying gold stored in a vault managed by Julius Baer's sub-custodian.
Pension funds in the UK are able to access the fund through Canada Life International platforms, while pension funds based in other countries can access it via Royal London 360.
Create-Research chief executive Amin Rajan said that this is part of a growing trend among private banks in offering structured ETFs. However, he explained that private banks can only gain money from ETFs by wrapping them in structured products.
He said: "Advisors can't sell ETFs directly and most don't typically sell index-linked products because they don't generate good fees. Wrapping ETFs in structured products changes the feature of ETFs - by getting a fee on the side."
He explained that structured ETFs can provide some capital protection and amplify returns through leverage, although this is costlier, due to the additional expense of derivatives.
While this is a way for banks to gain higher fees, he said this also depends on banks' charge structure, although investors will typically pay a minimum of 1% for a structured ETF.
But Julius Baer executive director, product management and development Stephan Mueller said: "Structured ETFs are not a general trend; this is part of custom-made design engineering."
He explained that this is not a way to simply generate extra money through fees, and that investors are not going to pay double fees for any ETF wrapped in a structured product unless it brings them obvious benefits.
He said: "A structured ETF adds capital protection, while offering the ability to access markets which are otherwise hard to access - like emerging markets. Or in the case of our Physical Gold Fund, through Canada Life International - this is the only way we could offer it to UK investors."
Similarly, EFG Private Bank head of active advisory Rasik Ahuja explained that their use of ETFs to underlie structured products is to gain exposure to certain markets, not to gain higher fees.
He said: "If a client wants capital protection, an ETF doesn't give you that; so that's when you could use a protected note to provide this protection and you would use the ETF like an index."
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