Late last week Purpose Investments announced it had edged out a rival and reached a definitive agreement to convert the Central Gold Trust (CTU) and Silver Bullion Trust (SBT) closed-end funds into ETFs. That put the bid by competing Sprott Asset Management on the outs with unitholders despite possessing many of the attributes advisors find beneficial.
"The Purpose Investments transaction is an illogical proposition for GTU and SBT unitholders who made the choice to invest in a security fully backed by physical bullion,” said Sprott Asset Management CEO John Wilson. “GTU and SBT unitholders have a better option through the Sprott offers to preserve the nature of their investment, receive an immediate premium, close the historical discounts to NAV, and participate in a security that trades at, near or above NAV.”
For clients interested in holding physical gold and silver, Purpose’s plan would eliminate that possibility. Furthermore, there are no assurances that this conversion will be done in a timely manner for existing unitholders.
"An ETF conversion has many risks and issues. Similar conversions requiring regulatory and other approvals, took significant time to complete,” said Wilson. “An ETF would provide no physical redemption feature and is designed to ensure that GTU and SBT will never again trade at a premium – even in a gold or silver bull market. Also, the ETF's bullion would be stored at a commercial bank that can use a series of sub-custodians, meaning you won't know where your gold is at any given time."
Advisors concerned about excessive fees should note that under this agreement with Purpose, the Spicer family will retain approximately 60% of their current fees.
“Sprott is offering unitholders an immediate and certain premium to account for the significant costs that the Trustees have forced on unitholders to pay for costly lawsuits and expensive advisors to protect the Spicer family and the fees they receive,” said Sprott’s press release. “As part of the Sprott offers, unitholders will receive a premium of US$0.10 per GTU unit payable in Sprott Physical Gold Trust units and US$0.025 per SBT unit payable in Sprott Physical Silver Trust units – representing approximately $2 million of immediate and certain value.”
To read Sprott’s position on this click here