performance evaluation of gold etf
DESCRIPTION
This is an brief description about my Project which was carried on at Kotak Securities, Mangalore on topic Performance Evaluation of Gold ETF with the object how Gold ETF can simplify your Investment objectives than physical Gold.TRANSCRIPT
Performance Evaluation of Gold ETF
Undertaken at Kotak Securities Ltd
Nithish Sebastian
USN: 4MT10MBA 34
Company Profile
Theoretical Background
SWOT Analysis
Learning Experience
Study Objectives
Research Design
Analysis and Interpretation
Observations
Major Findings of the Study
Conclusion
Contents
Company Profile:
Kotak Securities Ltd is one of the oldest and largest broking firms in the Industry which was set up in the year 1994 as a 100 % subsidiary of Kotak Mahindra Bank.
Promoters: Uday kotak (founder) and Rahul Kejriwal
Kotak Securities is a corporate member of both The Bombay Stock Exchange and The National Stock Exchange of India Limited.
Vision:Kotak works with the vision of being:
The global Indian financial services brand.
The most preferred employer in financial services.
The most trusted financial services company.
A value creator.
Equities
Derivatives
Mutual funds
Portfolio management service.
Research
Kotak Securities have been the first in providing many products and services which have now become industry standards. Some of them are:
Facility of Margin Finance to the Customers for Online Stock Trading
Investing In IPO’s and Mutual Funds On the Phone
Mobile Application to Track Portfolio of your Investments in Stock Market.
Products or Services:
Theoretical Background What is Gold ETF?
Gold ETF is an open ended ETF which would invest in gold and endeavor to track the spot price of gold. Thus it can be considered as means of investing in gold without taking physical delivery of gold. Each unit of Gold ETF may be approximately equal to 1gm or 0.5 gm of gold at the time of allotment.
Working of Gold ETF
Working of Gold ETF during New Fund Offer (NFO):
Investors
CustodianETF Sponsor
Demat A/ct of Investors
The investor has to invest in minimum amount . For say, Kotakgold ETF Rs 5000 and in multiples of Re 1 thereafter.
ETF Sponsor buys Gold and deposit it with the custodian
The units allotted will be credited to the depository account of the investors
Working of Gold ETF – Ongoing:
Buyer
Seller
Stock Exchange
Authorized Participants or Large Investors
ETF Sponsor
Creation of units in exchange of physical gold
Redemption of units in exchange of physical gold
Cash
Cash
Secondary Market
Market making or Arbitrage
Buy or Sell
Custodian
ETF Units
ETF Units
Deposit the physical gold
Transferring physical gold in case of redemptions
Primary Market
Benefits of Investment in Gold Exchange Traded Fund (GETF)
Small Denomination:
Liquidity:
Transparent Pricing:
Safety:
Purity:
Tax Efficient:
SWOT Analysis
Strengths:
Brand image is popular and can be capitalized.
Efficient and committed employees
Efficient back office support system which manages customer accounts effectively
and efficiently.
Efficient research and risk management team.
Company continues to achieve cost efficiency through application of technologies.
Effective and wider distribution network with presence of over 20,000 primary
market sub brokers, 1420 outlets in 447 cities makes it one of the broking houses
with the largest network and largest player in the distribution of IPO’s.
Provides both online and offline trading to meet changing needs of the customers.
First mover and some of its products have become industry standards.
Weaknesses:
No presence in the rural areas.
Lack of promotional activities and effective strategies to attract customers.
Lack of products and services that deliver to meet investment needs of students.
Opportunity:
There is continuous growth in this sector. People are more aware,
knowledgeable and interested in investing in stock market.
Increase in literacy, job opportunities and increase in income in the hands of the
people seek more on investments to reduce tax liability as well as for the needs
of the future.
India is one of the developing nations with wider geographical market and
according to the report of committee on vision 2020 “India 2020 will be
bustling with energy, entrepreneurship and innovation”.
Bringing new innovative products and services that are more customized to
meet the investment needs of the students and others.
Threats:
Competition in this sector is increasing with the entry of lots of private giants
with the collaboration of foreign giants
As all other securities broking houses come with similar products and services
with almost equal brokerage charges it is bit difficult to capture and be
competitive in the market.
Changes in political, economic conditions, government policy and regulations
and recent scams etc adversely affected indian stock market.
Learning ExperienceEnhance knowledge about Gold ETF and draw inferences about Gold ETF as an investment option. Thus, by carrying out with the analysis, the researcher could draw a proper evaluation about the performance of Gold ETF from investment perspective.
Could get real world experience about happenings in the stock market. As being in their office could dilate practical knowledge and comprehend to the glimpses of stock market and come to know about activities taking place at securities broking firm.
Track intraday price movements of Gold ETF and could have interaction with the clients and staffs. This helped to understand the investor’s perception towards Gold ETF
The researcher’s conceptual knowledge about the methodologies adopted for the study which has been gained from his class room experience could be enhanced by putting it practical and further, the real world experience gained from the company was immense and knowledgeable to understand the things more practical and better.
Objectives of the Study:
To study the concept of Gold Exchange Traded Fund (GETF).
To evaluate the performance of Gold ETF vis-à-vis MCXCOMDEX index.
Research Design
Methodology
Data collection
Statistical measure
Sample size
Limitations of the Study
Analysis and Interpretation
Financial Year2008
SymbolReturns
(%)
σ
Beta
Alpha
(%)
Sharpe
Ratio
Treynor’s
Ratio
Jensen’s Alpha (%)
GOLDBEES
25.58
1.75 0.56 0.19
GOLDSHARE
26 1.77 0.51 0.18
KOTAKGOLD 25.56 1.71 0.52 0.18
RELGOLD
23.54 1.77 0.54 0.18
Market
(MCXCOMDEX) -35.96 1.71 1
0
(Default)
Financial Year 2009
SymbolReturns
(%)
σ
Beta
Alpha(%)
Sharpe
Ratio
Treynor’s
Ratio
Jensen’s
Alpha (%)
GOLDBEES
23.86
1.14 0.12 0.07
GOLDSHARE 24.05 1.09 0.11 0.07
KOTAKGOLD 23.39 1.13 0.10 0.07
RELGOLD 23.72 1.16 0.13 0.07
QGOLDHALF
22.59 1.19 0.10 0.07
Market
(MCXCOMDEX) 56.44 1.63 1
0 (Default)
Financial Year2010
SymbolReturns
(%)
σ
Beta
Alpha(%)
Sharpe
Ratio
Treynor’
sRatio
Jensen’s Alpha (%)
GOLDBEES
20.53
0.84 0.38 0.05
GOLDSHARE 20.55 0.80 0.35 0.06
KOTAKGOLD
20.62 0.81 0.35 0.06
RELGOLD 20.44 0.83 0.31 0.06
QGOLDHALF 20.27 0.80 0.34 0.06
SBIGETS 20.20 0.85 0.34 0.06
Market (MCXCOMDEX)
18.20 0.90 1
0 (Default)
Financial Year2011
Symbol Returns (%) σ Beta Alpha (%) Sharpe Ratio
Treynor’sRatio
JensenAlpha (%)
GOLDBEES 27.95 1.21 0.50 0.08
GOLDSHARE 27.74 1.19 0.44 0.08
KOTAKGOLD 28.43 1.20 0.49 0.08
RELGOLD 28.75 1.20 0.49 0.08
QGOLDHALF 28.24 1.19 0.46 0.08
SBIGETS 28.51 1.26 0.36 0.09
RELIGAREGO 27.83 1.21 0.46 0.09
HDFCMFGETF 27.41 1.24 0.43 0.09
IPGETF 27.20 1.26 0.48 0.08
AXISGOLD 27.33 1.17 0.41 0.09
Market 16.23 1.06 1 0
(Default)
Gold ETF’s Launched in the FY 2011
Symbol MonthsReturns
(%)σ Beta Alpha
(%)
BSLGOLDETF 1st June 2011 – 31st Dec 2011 19.51 1.63 0.57 0.10
IDBIGOLD
1st Dec 2011 – 31st Dec 2011
-7.27 1.02 0.59 - 0.33
Major findings of the Study:
In FY 2008, Market fetched negative returns. However, returns on Gold ETFs were positive. Thus investor could choose Gold ETF as an investment avenue during the period.
In the FY 2008, Kotak Gold ETF has generated annual returns 25.56% with the lowest risk 1.71 thus risk averse investors would prefer Kotak Gold ETF.
In FY 2009, Market generated more returns than Gold ETFs. However, Jensen’s Alpha on Gold ETF’s were positive which indicates that Gold ETF’s fetched returns more than the expected returns.
In FY 2010 and 2011, Gold ETFs fetched more returns than Market. Thus investor could choose Gold ETF as an investment avenue during the period.
In FY 2011, Relgold could generate 0.32% more returns than Kotakgold with the same level of risk 1.20.
In FY 2011, Quantum Gold ETF could generate 0.50% more returns than UTI’s Goldshare with the same level of risk 1.19.
In FY 2011, Goldshare could produce 0.12% more returns than Religare Gold ETF with the same level of risk 1.21.
In FY 2011, SBI Gold ETF could generate 1.31% more returns than ICICI Gold ETF with the same level of risk 1.26 .
In FY 2011, The risk averse investor may prefer Axis Gold ETF which generated annual returns 27.33% with the risk 1.17 and The risk taking investor could prefer Relgold with annual returns 28.75% with the risk 1.20.
Financial Year (FY) 2008
Symbol
Sharpe Ratio
Rank
Treynor’s
Ratio
Rank
Jensen’s Alpha (%)
Rank
GOLDBEES
III
III
I
GOLDSHARE
II
I
IV
KOTAKGOLD
I
II
II
RELGOLD
IV
IV
III
MCXCOMDEX
(Market)
V
V
0
(Default)
V
Financial Year (FY) 2009
Symbol
Sharpe Ratio
Rank
Treynor’sRatio
Rank
Jensen’s Alpha (%)
Rank
GOLDBEES
III
IV
III
GOLDSHARE
II
III
I
KOTAKGOLD
IV
I
II
RELGOLD
V
V
V
QGOLDHALF
VI
II
IV
MCXCOMDE
X (Market)
I
VI
0 (Default)
VI
Financial Year (FY) 2010
Symbol
Sharpe Ratio
Rank
Treynor’sRatio
Rank
Jensen’s Alpha (%)
Rank
GOLDBEES
V
VI
VI
GOLDSHARE
I
V
III
KOTAKGOLD
II
III
II
RELGOLD
IV
I
I
QGOLDHALF
III
II
IV
SBIGETS
VI
IV
V
MCXCOMDEX
(Market)
VII
VII
0 (Default)
VII
Financial Year (FY) 2011
Symbol Sharpe Ratio Rank
Treynor’sRatio Rank
Jensen’s Alpha (%) Rank
GOLDBEES VI X IX
GOLDSHARE IV IV V
KOTAKGOLD II VIII IV
RELGOLD I VII II
QGOLDHALF III V III
SBIGETS VIII I I
RELIGAREGO VII VI VI
HDFCMFGETF IX III VIII
IPGETF X IX X
AXISGOLD V II VII
MCXCOMDEX(Market)
XI XI 0
(Default) XI
Observations
From the returns perspective, returns on Gold ETFs move in same direction. This clearly indicates that Gold ETF prices move in accordance with physical Gold prices.
The returns between Gold ETFs of various mutual fund houses vary at corresponding period of time. This disparity in returns at corresponding period of time is within the range of 0 to 2%. This clearly implies that the major portions of all Gold ETF portfolios is Physical Gold and also include other liquid assets.
The Gold ETFs risk is very low. The standard deviation of Gold ETFs with respect to analysis ranges from 0.80 to 1.77 thus, the investor can expect at the maximum deviation of annual returns by -1.77 or +1.77 returns.
In respect to market risk, the Gold ETFs have the beta value less than 1. Thus acts as a portfolio diversifier and investors can expect stable returns.
The Alpha of Gold ETFs is almost same during the corresponding period of time. Thus there is no significant difference in returns generated from the effective management of Gold ETF portfolio. Further, this also indicates that the systematic risk plays a crucial role in generating competitive returns, if market performs well.
Most of the Gold ETFs are ranked with different ranks under Sharpe ratio and Treynor’s ratio during corresponding period of time. Thus this upholds the fact that Gold ETF portfolio is inclusive of unsystematic risk.
All the Gold ETFs has positive Jensen’s Alpha during the entire period subject to analysis which indicates that Gold ETFs has generated returns more than the expected returns.
C0nclusions
Gold ETF, which tracks physical gold prices, stands as a medium for investment in Gold.
no chance of huge fluctuations in returns on investment in Gold ETF unlike that of equity.
Faced with a stagnant economy and a fear of recession, many investors are switching to gold as an investment alternative. Backed by this demand and buying by governments of different countries as a safety net, the price of gold is expected to rise further in the near future, bringing appreciation in value to Gold ETFs.
Hence we can say that Gold ETF is an attractive investment alternative, where one may expect good returns over a long term time horizon.
Thank You……