WisdomTree Hedged Metal Securities
Limited
Registered No: 108311
Report and Financial Statements for the
Year ended 31 December 2021
WisdomTree Hedged Metal Securities Limited
Contents
www.wisdomtree.eu
WisdomTree Hedged Metal Securities Limited
Management and Administration
DirectorsAdministrator
Stuart BellR&H Fund Services (Jersey) Limited
Christopher FouldsOrdnance House
Steven RossPO Box 83
Peter Ziemba31 Pier Road
St Helier
Jersey, JE4 8PW
Registered OfficeRegistrar
Ordnance HouseComputershare Investor Services (Jersey) Limited
31 Pier Road13 Castle Street
St HelierSt Helier
Jersey, JE4 8PWJersey, JE1 1ES
Manager
WisdomTree Management Jersey Limited
Ordnance House
31 Pier Road
St Helier
Jersey, JE4 8PW
FX Counterparty
Morgan Stanley & Co. International plc
25 Cabot Square
Canary Wharf
London, E14 4QA
United Kingdom
Auditor
Ernst & Young LLP
Liberation House
Castle Street
St Helier
Jersey, JE1 1EY
Company Secretary
R&H Fund Services (Jersey) Limited
Ordnance House
31 Pier Road
St Helier
Jersey, JE4 8PW
Trustee
The Law Debenture Trust Corporation plc
Fifth Floor
100 Wood Street
London, EC2V 7EX
United Kingdom
Custodian
JP Morgan Chase Bank, NA
London Branch
125 London Wall
London, EC2Y 5AJ
United Kingdom
Jersey Legal Advisers
Mourant Ozannes
22 Grenville Street
St Helier
Jersey, JE4 8PX
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WisdomTree Hedged Metal Securities Limited
Directors’ Report
The directors of WisdomTree Hedged Metal Securities Limited (“HMSL” or the “Company”) submit herewith
the annual report and financial statements of the Company for the year ended 31 December 2021.
Directors
The names and particulars of the directors of the Company during and since the end of the financial year are:
Stuart Bell
Christopher Foulds
Steven Ross
Peter Ziemba
Directors’ Interests
No director has an interest in the Shares of the Company as at the date of this report.
Principal Activities
The Company’s principal activity is the issue and listing of currency-hedged metal securities (“Currency-
Hedged Metal Securities”). Currency-Hedged Metal Securities allow investors to gain a currency hedged
exposure to the precious metals market without needing to take physical delivery of the physical metal or
enter into currency hedge transactions. It also allows investors to buy and sell that interest through the
trading of a security on the London Stock Exchange and any other exchange to which that security may be
admitted to trading from time to time.
Each Currency-Hedged Metal Security is denominated in a specified currency and is backed by physical
metal (“Metal Bullion”) which is held in custody by designated custodians, supported by one or more Metal
Adjustment Agreements (and “Metal Adjustment Contracts” entered into pursuant thereto) with one or more
FX Counterparties (currently the only FX Counterparty is Morgan Stanley & Co. International plc (“Morgan
Stanley”)) which provide a currency hedging overlay.
The Metal Bullion is the subject of fixed and floating charges in favour of the Trustee, and once deposited,
may only be removed after approval from the Trustee. A holder of a Metal Security is entitled to require the
redemption of that Metal Security and receive an amount of Metal Bullion equal to the Metal Entitlement on
the date of redemption (and subject to applicable redemption fees).
The amount of Metal Bullion and Metal Adjustment Contracts held by the Company will be calculated in
accordance with an agreed formula published in the Prospectus equivalent to the entitlement (the “Metal
Entitlement”) of each class of Currency-Hedged Metal Security. The Metal Entitlement is adjusted daily by an
amount of bullion (the “Daily Hedging Variation”), which reflects the daily movement of an index, tracking the
variation in the exchange rate between United States Dollars and the currency of denomination of that class of
Currency-Hedged Metal Security, as well as being adjusted for the deduction of applicable fees (see below).
The Company earns a management and hedging fee by reducing the Metal Entitlement of each class of
Currency-Hedged Metal Security on a daily basis by an agreed amount (the “Management Fee” and the
“Hedging Fee”). A fee equivalent to the Hedging Fee is paid to the FX Counterparty (the “FX Counterparty
Fee”).
The Company has entered into a service agreement with WisdomTree Management Jersey Limited (“ManJer” or
the “Manager”), whereby ManJer is responsible for supplying or procuring the supply of all management and
administration services required by the Company, (including marketing) as well as the payment of costs relating to
the listing and issue of Currency-Hedged Metal Securities. In return for these services, the Company has an
obligation to remunerate ManJer with an amount equal to the aggregate of the Management Fee and the creation
and redemption fees earned (the “ManJer Fee”). The Metal Bullion in respect of the Management Fee and
Hedging Fee is transferred in the form of bullion on a monthly basis (in arrears) following agreement from the
Trustee from the Company’s custodian accounts directly to ManJer (and ManJer transfers the Metal Bullion in
respect of the Hedging Fee to the FX Counterparty). In addition, creation and redemption fees are transferred
directly to ManJer and there are no cash flows through the Company.
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WisdomTree Hedged Metal Securities Limited
Directors’ Report (Continued)
Review of Operations
The most recent Prospectus was issued on 24 November 2021. As at 31 December 2021, the Company had
the following classes of Currency-Hedged Metal Securities in issue and admitted to trading on the following
exchanges :
As at 31 December 2021, the fair value of assets under management amounted to USD 1,780.7 million
(2020: USD 1,932.7 million). The Company recognises its assets (Metal Bullion and Metal Adjustment
Contracts) and financial liabilities (Currency-Hedged Metal Securities and Metal Adjustment Contracts) at fair
value in the Statement of Financial Position.
The Company holds Metal Bullion and enters into Metal Adjustment Contracts to support the Currency-
Hedged Metal Securities as determined by the Metal Entitlement. Metal Bullion and Metal Adjustment
Contracts are marked to fair value at the end of each Pricing Day by reference to the MSPM indices
published by Morgan Stanley (referred to within these financial statements as the “Contractual Value”). Prior
to 29 October 2020 the MSPM indices were calculated by reference to the gold bullion futures benchmark
price (COMEX) adjusted by an Exchange for Physical (an adjustment, calculated by MS&Co, that translates
a futures price into a current spot price). Since 29 October 2020 the reference price used to convert the
value of the currency hedge into a quantity of Metal Bullion is the spot rate for Metal Bullion, as published by
the London Bullion Market Association (“LBMA”).
The Company has entered into contractual obligations to issue and redeem Currency-Hedged Metal
Securities in exchange for Metal Bullion as determined by the Metal Entitlement of each class of Currency-
Hedged Metal Security on each trading day. The Metal Bullion in respect of each creation and redemption is
recorded using the price provided by the LBMA on the transaction date.
IFRS 13 requires the Company to identify the principal market and to utilise the available price within that
principal market. The directors consider the stock exchanges where the Currency-Hedged Metal Securities
are listed to be the principal market and as a result the fair value of the Currency-Hedged Metal Securities is
the on-exchange price as quoted on the stock exchange demonstrating active trading with the highest
trading volume on each day that the price is obtained. As a result of the difference in valuation between the
Metal Bullion, Metal Adjustment Contracts and Currency-Hedged Metal Securities, there is a mis-match
between the values recognised, and the results of the Company reflect a gain or loss on the difference
between the value of the Metal Bullion and the Metal Adjustment Contracts (through the application of the
price provided by the LBMA against the Metal entitlement, referred to within these financial statements as
the “Contractual Value”) and the price of Currency-Hedged Metal Securities.
The gain or loss on Currency-Hedged Metal Securities and Metal Bullion together with the Metal Adjustment
Contracts are recognised through profit or loss in line with the Company’s accounting policy. This is
presented in more detail in notes 7 and 8 to these financial statements.
The Company’s exposure to risk is disclosed in note 13 to the financial statements.
The Company is entitled to:
•
A Management Fee which is calculated by reducing the Metal Entitlement of each class of
Currency-Hedged Metal Security on a daily basis by an agreed amount; and
•
Creation and redemption fees on the issue and redemption of the Currency-Hedged Metal Securities.
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WisdomTree Hedged Metal Securities Limited
Directors’ Report (Continued)
Review of Operations (continued)
During the year, the Company generated income from creation and redemption fees and Management Fees
as follows:
The Hedging Fees received are recharged by and paid to the FX Counterparty.
Non-GAAP Performance Measures
Under the terms of the service agreement with ManJer, the Company accrued expenses equal to the
management fees and the creation and redemptions fees, which, after taking into account other operating
income and expenses, resulted in a result before fair value movements for the year of USD Nil (2020: USD
Nil).
As the difference in the valuation of Metal Bullion (held to support the Currency-Hedged Metal Securities)
and Currency-Hedged Metal Securities would be reversed on a subsequent redemption of the Currency-
Hedged Metal Securities and transfer of the corresponding Metal Bullion (as described further in note 16),
the Company presents an adjusted Statement of Profit or Loss and Other Comprehensive Income and an
adjusted Statement of Changes in Equity in note 16 of the financial statements.
Coronavirus disease (COVID-19)
The COVID-19 pandemic continues to persist and the ultimate duration of the pandemic and its short-term
and long-term impact on the global economy is unknown. National governments and supranational
organisations in multiple states continue taking steps designed to protect their populations from COVID-19,
including requiring or encouraging home working, the cancellation of sporting, cultural and other events and
restricting or discouraging gatherings of people. COVID-19 has created market turmoil and increased market
volatility generally. Mutations in the virus, a setback in vaccine distribution and negative global economic
consequences arising from the pandemic, amongst other factors, could have a future adverse impact on the
global financial markets. The steps outlined above, and public sentiment, may affect both the volatility and
prices of Metal Bullion and hence the prices of the Currency-Hedged Metal Securities, and such effects may
be significant and may be long-term in nature.
The directors are closely monitoring the advice and developments relating to the spread of COVID-19, which
is fluid and rapidly changing. The WisdomTree group has, and continues to implement measures to maintain
the ongoing safety and well-being of employees, whilst continuing to operate business as usual.
Going Concern
The nature of the Company’s business dictates that the outstanding Currency-Hedged Metal Securities may
be redeemed at any time by Authorised Participants and in certain circumstances by individual holders and
also, in certain circumstances, may be compulsorily redeemed by the Company. As the redemption of
Currency-Hedged Metal Securities will always coincide with the transfer of an equal amount of Metal Bullion,
liquidity risk is mitigated such that there is no material residual risk. All other expenses of the Company are
met by ManJer. The directors are closely monitoring the advice and developments relating to the spread of
COVID-19, particularly with its impact on ManJer, its assets under management, and therefore its related
revenue streams, in respect of fulfilling the obligations under the services agreement. The directors consider
the operations of the Company to be ongoing, with a reasonable expectation that the Company has
adequate resources to continue in operational existence until 30 April 2023, and accordingly these financial
statements have been prepared on the going concern basis.
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WisdomTree Hedged Metal Securities Limited
Directors’ Report (Continued)
Future Developments
On February 24, 2022, Russia engaged in military actions in the sovereign territory of Ukraine. The board of
directors (the “Board”) is closely monitoring developments that may impact financial markets including
sanctions, actions by governments and developments of the crisis. The Board will further assess the impact
on the fund’s portfolio operations and valuation and will take any potential actions needed, as facts and
circumstances are subject to change and may be specific to investment strategies and jurisdictions.
The Board are not aware of any developments that might have a significant effect on the operations of the
Company in subsequent financial periods not already disclosed in this report or the attached financial
statements.
Corporate Social Responsibility
Sustainability and corporate responsibility are embedded throughout the business of the WisdomTree group
as we believe this benefits shareholders and employees of the WisdomTree group, investors in
WisdomTree’s products as well as wider society.
Environmental, Social and Governance (“ESG”) investing is guided at the Wisdomtree group level by an ESG
Steering Committee, which includes senior leaders from across the Wisdomtree group business, and which
included several sub-committees focused on particular ESG considerations, such as improving data and
transparency into the ESG attributes of WisdomTree’s products. Particular ESG considerations relevant to the
Company’s products are overseen by the directors, leveraging the work undertaken by the ESG Steering
Committee. More information on WisdomTree’s corporate social responsibility strategy can be found on the
Wisdomtree group website (https://www.wisdomtree.eu/en-gb/wisdomtree-corporate-responsibility).
The Board acknowledges that climate change and its impact on the global economy is of increasing interest
and focus for stakeholders and that, where relevant, stakeholders will seek information from companies
regarding how climate change is expected to impact the operations of the business and how climate change
risk has been considered in the context of reported results.
In acknowledging the above, the Board has considered the Company’s exposure to climate change and
determined that due to the nature of the Company and its operations there are no directly observed impacts
of climate change on the business. As a result, the Board concluded that there is no basis on which to
provide extended information of analysis relating to climate change, including as part of the basis of
accounting or individual accounting policies adopted by the Company.
In the above determination, the Board has concluded specifically that climate change, including physical and
transition risks, does not have a material impact on the recognition and separate measurement
considerations of the assets and liabilities in these financial statements as at 31 December 2021.
This conclusion is based on the fact that assets are reported at fair value under IFRS, and as set out in note
13 are categorised as level 2 due to the use of observable, verifiable inputs, including use of third party
information sources within the agreed pricing formulae (set out in the Prospectus). The liabilities are valued
utilising listed market prices at the period end. These observable inputs and market prices will reflect wider
market sentiment, which inherently includes market perspectives relating to the impact of climate change.
The Board recognises that government and societal responses to climate change risks are still developing
and the future impact cannot be predicted. Future valuations of assets and liabilities may therefore differ as
the market responds to these changing impacts or assesses the impact of current requirements differently.
Dividends
There were no dividends declared or paid in the year (2020: USD Nil). It is the Company’s policy that dividends
will only be declared when the directors are of the opinion that there are sufficient distributable reserves.
Employees
The Company does not have any employees. It is the Company’s policy to use the services of specialist
subcontractors or consultants as far as possible.
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WisdomTree Hedged Metal Securities Limited
Directors’ Report (Continued)
Directors’ Remuneration
No director has a service contract with the Company. The directors of the Company who are employees
within the WisdomTree Investments, Inc group do not receive separate remuneration in their capacity as
directors of the Company. R&H Fund Services (Jersey) Limited (“R&H” or the “Administrator”) receives a fee
in respect of the directors of the Company who are employees of R&H.
The following directors’ fees have been paid by ManJer on behalf of the Company for the year:
Principal Risks and Uncertainties
There is an inherent risk from the point of view of investors as the values of Currency-Hedged Metal Securities,
and thus the value of the Currency-Hedged Metal Securities, may vary widely due to, amongst other things,
changing supply and demand for Metal Bullion, government and monetary policy or intervention, interest rate
levels and global or regional political, economic or financial events. The market price of Currency-Hedged Metal
Securities is (and will remain) a function of supply and demand amongst investors wishing to buy and sell
Currency-Hedged Metal Securities and the bid or offer spread that the market makers are willing to quote.
The Currency-Hedged Metal Securities provide investors with exposure to precious metals. Movements in
the value of the underlying Metal Bullion and Metal Adjustment Contracts, and thus the value of the
Currency-Hedged Metal Securities, may vary widely which could have an impact on the demand for the
Currency-Hedged Metal Securities issued by the Company. These movements are shown in notes 7 and 8.
During the year ended 31 December 2021, the price of gold dropped 3.75%. Coupled with the impact in
changes between the value of the US Dollar against the British Pound and the Euro, WisdomTree Physical
Gold - GBP Daily Hedged Securities dropped in value by 5.53% and WisdomTree Physical Gold - EUR Daily
Hedged Securities dropped in value by 12.98% between 31 December 2020 and 31 December 2021.
Each Currency-Hedged Metal Security is a debt instrument whose redemption price is linked to the value of
the relevant underlying Metal Bullion and Metal Adjustment Contracts. Each class of Currency-Hedged Metal
Securities is issued under limited recourse arrangements whereby the holders have recourse only to the
relevant Metal Bullion and Metal Adjustment Contracts held to support the Currency-Hedged Metal Security
and not to the Metal Bullion and Metal Adjustment Contracts of any other class of Currency-Hedged Metal
Security or the Company.
Any movements in the value of the Metal Bullion and Metal Adjustment Contracts are wholly attributable to the
holders of the Currency-Hedged Metal Securities, the Company has no residual exposure to movements in the
value of the Metal Bullion and Metal Adjustment Contracts. From a commercial perspective the Company does not
retain any net gains or losses or net risk exposures, as (with the exception of the impact of the Management Fee
and the Hedging Fee) the gains or losses on the liability represented by the Currency-Hedged Metal Securities are
matched economically by corresponding losses or gains attributable to the Metal Bullion and Metal Adjustment
Contracts (see detail on page 3 regarding the accounting mis-match).
The Company has exposure to country and currency risk as the Currency-Hedged Metal Securities are
priced in US Dollars and hedged against exchange rate movements between the US Dollar and the Euro or
Pound Sterling. However, the directors do not consider the Company to have a significant net exposure to
country and currency risk as the gains or losses on the liability represented by the Currency-Hedged Metal
Securities are matched economically by corresponding losses or gains attributable to the Metal Bullion and
Metal Adjustment Contracts.
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WisdomTree Hedged Metal Securities Limited
Directors’ Report (Continued)
Principal Risks and Uncertainties (continued)
The Hedging Fee income is matched by an equivalent expense payable to the FX Counterparty.
Furthermore, the Company pays ManJer an amount equal to the management fee and the creation and
redemption fees earned (the “ManJer Fee”), which results in the Company recognising a result before fair
value movements of nil for each period. As a result, the principal risks and uncertainties to which the
Company is exposed has not materially changed during 2021.
Additional information on other financial and operational risks and uncertainties faced by the Company,
including further details surrounding the value of Currency-Hedged Metal Securities and the Metal Bullion
and Metal Adjustment Contracts are disclosed in note 13 of these financial statements.
Corporate Governance
There is no standard code of corporate governance in Jersey. The operations, as previously described in the
Directors’ Report, are such that the directors have determined that the Company is not required to apply, and
has elected not to voluntarily apply, the UK Corporate Governance Code.
As the Board is small, there is no nomination committee and appointments of new directors are considered
by the Board as a whole. The Board does not consider it appropriate that directors should be appointed for a
specific term. Furthermore, the structure of the Board is such that it is considered unnecessary to identify a
senior non-executive director.
The constitution of the Board is disclosed on page 2. The Board meets regularly as required by the
operations of the Company, but at least quarterly to review the overall business of the Company and to
consider matters specifically reserved for its review.
Internal Control
During the year the Company did not have any employees or subsidiaries, and there is no intention that this
will change. The Company, being a special purpose company established for the purpose of issuing
Currency-Hedged Metal Securities, has not undertaken any business, save for issuing and redeeming
Currency-Hedged Metal Securities, entering into the required documents and performing the obligations and
exercising its rights in relation thereto, since its incorporation. The Company does not intend to undertake
any business other than issuing and redeeming Currency-Hedged Metal Securities and performing the
obligations and exercising its rights in relation thereto.
The Company is dependent upon ManJer to provide management and administration services to it. ManJer
is licensed under the Financial Services (Jersey) Law 1998 to conduct classes U and Z of Fund Services
Business. ManJer outsources the administration services in respect of the Company to the Administrator.
Documented contractual arrangements are in place with the Administrator which define the areas where the
authority is delegated to them. The performance of the Manager and Administrator are reviewed on an
ongoing basis by the Board through their review of periodic reports. ManJer provides management and other
services to both the Company and other companies issuing commodity and index tracking securities.
The Board having reviewed the effectiveness of the internal control systems of the Manager and the
Administrator, does not consider that there is a need for the Company to establish its own internal audit
function.
Audit Committee
The Board has not established a separate audit committee; instead the Board meets to consider the financial
reporting by the Company, the internal controls, and relations with the external auditor. In addition, the Board
reviews the independence and objectivity of the auditor.
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WisdomTree Hedged Metal Securities Limited
Directors’ Report (Continued)
Auditor
The Independent Auditor is Ernst & Young LLP. A resolution to re-appoint Ernst & Young LLP will be
proposed at the next Board meeting of the directors.
Christopher Foulds
Director
Jersey
27 April 2022
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WisdomTree Hedged Metal Securities Limited
Statement of Directors’ Responsibilities
The directors are responsible for preparing the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law
they have elected to prepare the financial statements in accordance with International Financial Reporting
Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”) and applicable law.
Under company law the directors must not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company
for that period. In preparing these financial statements, the directors are required to:
•
select suitable accounting policies and then apply them consistently;
•
make judgements and estimates that are reasonable and prudent;
•
state whether applicable accounting standards have been followed, subject to any material
departures disclosed and explained in the financial statements;
•
assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters
related to going concern; and
•
use the going concern basis of accounting unless they either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and
explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position
of the Company and enable them to ensure that the financial statements comply with the Companies
(Jersey) Law 1991. They are responsible for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud or
error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the
assets of the Company and to prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information
included on the Company’s website. Legislation in Jersey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
With regard to Directive 2004/109/EC, amended by Directive 2013/50/EU (collectively the Transparency
Directive), the Central Bank (Investment Market Conduct) Rules of the Central Bank of Ireland and the
Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, the directors confirm that
to the best of their knowledge that:
•
the financial statements for the year ended 31 December 2021 give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company as required by law and in
accordance with IFRS as issued by the IASB; and
•
the Directors’ Report gives a fair view of the development and performance of the Company’s
business, including financial position and the important events that have occurred during the year,
and their impact on these financial statements, together with a description of the principal risks and
uncertainties they face.
By order of the Board
Christopher Foulds
Director
Jersey
27 April 2022
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE HEDGED METAL SECURITIES LIMITED
Opinion
We have audited the financial statements of WisdomTree Hedged Metal Securities Limited (the
“company”) for the year ended 31 December 2021 which comprise the Statement of Profit or Loss
and Other Comprehensive Income, the Statement of Financial Position, the Statement of Cash Flows,
the Statement of Changes in Equity and the related notes 1 to 16, including a summary of significant
accounting policies. The financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board.
In our opinion, the financial statements:
►
give a true and fair view of the state of the company’s affairs as at 31 December 2021 and of its
loss for the year then ended;
►
have been properly prepared in accordance with IFRS; and
►
have been properly prepared in accordance with the requirements of the Companies (Jersey)
Law 1991.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We are independent of the
company in accordance with the ethical requirements that are relevant to our audit of the financial
statements, including the UK FRC’s Ethical Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern
basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the
directors’ assessment of the company’s ability to continue to adopt the going concern basis of
accounting included:
►
We obtained an understanding of management’s rationale for using the going concern basis of
accounting and confirmed our understanding of management’s Going Concern assessment
process including the process they adopted to capture all key factors in their assessment;
►
We obtained management’s board approved going concern assessment covering the period
of assessment from the date of signing to 30 April 2023. Management’s assessment has
focussed on a combination of;
►
Assessing the ongoing viability of the company through continued involvement of its
Custodian, Foreign Exchange Counterparty and Authorised Participants;
►
Assessing the ongoing ability of WisdomTree Management Jersey Limited (“ManJer”) to
continue to meet its obligations as manager and pay all expenses of the company. This
includes consideration of the assets under management of all managed issuer entities
(“Issuer Platform”) which includes this company. In assessing this ability we considered
the fixed and variable operating costs that could be supported under varying levels of
total assets under management for the Issuer Platform.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE HEDGED METAL SECURITIES LIMITED (continued)
►
Using our understanding of the business, we evaluated whether the considerations and
method adopted by management in assessing going concern was appropriate.
►
We performed reverse stress testing on the forecasts to understand how severe the
downside scenarios would have to be, and in particular the reduction in platform assets under
management, to result in the platform generating insufficient management fees to cover
operating costs. We observed significant headroom in management fee income, at current
Assets Under Management (“AUM”) levels, in excess of fixed costs which supports
management’s assumption that the Issuer Platform is able to absorb heightened levels of
volatility in AUM in the current economic climate.
►
We considered whether management’s disclosures, in the Annual Report and financial
statements, sufficiently and appropriately discloses information required in respect of the
going concern assumption applied through consideration of relevant disclosure standards.
Based on the work we have performed, we have not identified any material uncertainties relating to
events or conditions that, individually or collectively, may cast significant doubt on the company’s
ability to continue as a going concern over the period to 30 April 2023.
Our responsibilities and the responsibilities of the directors with respect to going concern are
described in the relevant sections of this report. However, because not all future events or conditions
can be predicted, this statement is not a guarantee as to the company’s ability to continue as a going
concern.
Overview of our audit approach
►
►
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality
determine our audit scope for the company. This enables us to form an opinion on the financial statements.
We take into account size, risk profile, the organisation of the company and effectiveness of controls,
including controls and changes in the business environment when assessing the level of work to be
performed. All audit work was performed directly by the audit engagement team.
Changes from the prior year
There were no scoping changes compared to the prior year.
Climate change
The company has explained climate-related risks in the Corporate Social Responsibility section of the
Directors’ Report. Our procedures on these disclosures therefore consisted solely of considering
whether these disclosures are materially inconsistent with the Company’s Financial Statements, or our
knowledge obtained in the course of the audit, or otherwise appear to be materially misstated.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE HEDGED METAL SECURITIES LIMITED (continued)
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial statements of the current period and include the most significant assessed
risks of material misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on: the overall audit strategy, the allocation of resources
in the audit; and directing the efforts of the engagement team. These matters were addressed in the
context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not
provide a separate opinion on these matters.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE HEDGED METAL SECURITIES LIMITED (continued)
valuation approach could be
significant.
The risk has remained
consistent with that observed in
the prior year.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect
of identified misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably
be expected to influence the economic decisions of the users of the financial statements. Materiality
provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the company to be US$17.7 million (2020: US$3.8 million), being 1%
of preliminary total assets reported (2020: 1% of Total Assets). We believe that Total Assets provides
us with an appropriate basis for audit materiality as Total Assets reflects the relevant exposure of
holders of issued securities to the underlying asset base.
There has been no change in the basis of materiality used compared to the prior year.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to
reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the company’s overall control
environment, our judgement was that performance materiality was 75% (2020: 50%) of our
materiality, namely US$13.2m (2020: US$1.9m). We had set performance materiality at 50% of our
materiality in the prior year based on our prior experience of identifying audit differences.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Board that we would report to them all uncorrected audit differences in excess
of US$885k (2020: US$190k), which is set at 5% of materiality, as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality
discussed above and in light of other relevant qualitative considerations in forming our opinion.
-13-
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE HEDGED METAL SECURITIES LIMITED (continued)
Other information
The other information comprises the information included in the annual report set out on pages 1 to 9,
other than the financial statements and our auditor’s report thereon. The directors are responsible for
the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the
course of the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether this gives
rise to a material misstatement in the financial statements themselves. If, based on the work we have
performed, we conclude that there is a material misstatement of the other information, we are
required to report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the
Companies (Jersey) Law 1991 requires us to report to you if, in our opinion:
►
proper accounting records have not been kept by the company, or proper returns adequate for our
audit have not been received from branches not visited by us; or
►
the financial statements are not in agreement with the company’s accounting records and
returns; or
►
we have not received all the information and explanations we require for our audit
Responsibilities of directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 9, the directors
are responsible for the preparation of the financial statements and for being satisfied that they give a
true and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are responsible for assessing the company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
-14-
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE HEDGED METAL SECURITIES LIMITED (continued)
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud.
The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion. The extent to which our procedures are capable
of detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those
charged with governance of the company and management.
►
We obtained an understanding of the legal and regulatory frameworks that are applicable to the
company and determined that the most significant are those that relate to the reporting
framework, comprising IFRS and Companies (Jersey) Law 1991. In addition, we concluded that
there are certain significant laws and regulations that may have an effect on the presentation and
disclosure of the financial statements being the applicable Listing Rules of the UK Listing
Authority and the Central Bank of Ireland (Investment Market Conduct) Rules;
►
We understood how WisdomTree Hedged Metal Securities Limited is complying with those
frameworks by making enquiries of the directors and key management of the administrative
service provider. We corroborated our enquiries through our review of minutes of Board
meetings, papers provided to the board and correspondence received from regulatory bodies
and noted no contradictory evidence;
►
We assessed the susceptibility of the company’s financial statements to material
misstatement, including how fraud might occur by understanding the investment objectives of
the Company and discussing with management to understand where reporting was
considered susceptible to fraud. Where this risk was considered to be higher, we performed
audit procedures in response to the identified fraud risk. These procedures included testing of
transactions to supporting documentation, testing of specific accounting journal entries and
focussed testing, including that referred to in the key audit matters section above. These
procedures were designed to provide reasonable assurance that the financial statements were
free from fraud or error;
►
Based on this understanding we designed our audit procedures to identify non-compliance
with such laws and regulations. Our procedures involved a review of board minutes to identify
any non-compliance with laws and regulations, a review of any associated reporting submitted
to the board on compliance with laws and regulations and enquiries of members of
management of the appointed administrative service provider;
►
As the company operates in the asset management industry the Audit Partner reviewed
the experience of the engagement team and concluded that the team had the appropriate
competence and capabilities.
-15-
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE HEDGED METAL SECURITIES LIMITED (continued)
A further description of our responsibilities for the audit of the financial statements is located on
the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
Other matters we are required to address
►
Following the recommendation from those charged with governance, we were appointed by the
company on 3 December 2019 to audit the financial statements for the year ending 31 December
2019 and subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments is
3 years, covering the years ending 31 December 2019 to 31 December 2021.
►
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the
company and we remain independent of the company in conducting the audit.
►
The audit opinion is consistent with the additional report to those charged with governance.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Article 113A of
the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the
company’s members those matters we are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Christopher David Gordon Barry, FCA
for and on behalf of Ernst & Young LLP
Jersey, Channel Islands
Date: 27 April 2022
-16-
WisdomTree Hedged Metal Securities Limited
Statement of Profit or Loss and Other Comprehensive Income
The directors consider the Company’s activities as continuing.
1 A non-statutory and non-GAAP Statement of Profit or Loss and Total Comprehensive Income reflecting adjustments
representing the movement in the difference between the Value of the Metal Bullion and the price of Currency-Hedged
Metal Securities is set out in note 16.
2 There are no items of Other Comprehensive Income, therefore the (Loss) / Profit for the Year also represented the Total
Comprehensive Income for the Year.
The notes on pages 21 to 39 form part of these financial statements
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WisdomTree Hedged Metal Securities Limited
Statement of Financial Position
The assets and liabilities in the above Statement of Financial Position are presented in order of liquidity from
most to least liquid.
The financial statements on pages 17 to 39 were approved and authorised for issue by the board of directors
and signed on its behalf on 27 April 2022.
Christopher Foulds
Director
The notes on pages 21 to 39 form part of these financial statements
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WisdomTree Hedged Metal Securities Limited
Statement of Cash Flows
Currency-Hedged Metal Securities are issued through a direct transfer of Metal Bullion from the Authorised
Participants to the Custodian or redeemed by the direct transfer of Metal Bullion by the Custodian to the
Authorised Participants. Metal Adjustment Contracts are converted into Metal Bullion by the direct transfer of
Metal Bullion between the Custodian and the FX Counterparty. As such the Company is not a party to any
cash transactions. The creations and redemptions of Currency-Hedged Metal Securities and additions and
disposals of Metal Bullion, which are non-cash transactions for the Company, are disclosed in notes 7 and 8
respectively in the reconciliation of opening to closing Currency-Hedged Metal Securities and Metal Bullion
and Metal Adjustment Contracts.
The Company has entered into a service agreement with WisdomTree Management Jersey Limited (“ManJer” or
the “Manager”), whereby ManJer is responsible for supplying or procuring the supply of all management and
administration services required by the Company, (including marketing) as well as the payment of costs relating to
the listing and issue of Currency-Hedged Metal Securities. In return for these services, the Company has an
obligation to remunerate ManJer with an amount equal to the aggregate of the management fee and the creation
and redemption fees earned (the “ManJer Fee”). The Metal Bullion in respect of the Management Fee and
Hedging Fee is transferred by the Trustee from the Company’s custodian accounts to ManJer’s custodian
accounts (and ManJer transfers the Metal Bullion in respect Hedging Fee to the FX Counterparty). In addition,
amounts in respect of the creation and redemption fees are transferred directly from the Authorised Participants to
ManJer and there are no cash flows through the Company.
The notes on pages 21 to 39 form part of these financial statements
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WisdomTree Hedged Metal Securities Limited
Statement of Changes in Equity
3 A non-statutory and non-GAAP Statement of Changes in Equity reflecting adjustments representing the difference between the Value of Metal Bullion and the price of Currency-
Hedged Metal Securities is set out in note 16.
The notes on pages 21 to 39 form part of these financial statements
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WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements
1.
General Information
WisdomTree Hedged Metal Securities Limited (the “Company”) is a company incorporated and domiciled in
Jersey. The address of the registered office is Ordnance House, 31 Pier Road, St. Helier, Jersey, JE4 8PW.
The purpose of the Company is to provide a vehicle that facilitates the issuance and subsequent listing and
trading of currency-hedged metal securities (“Currency-Hedged Metal Securities”). Each Currency-Hedged
Metal Security is denominated in a specified currency and is backed by physical metal (“Metal Bullion”) which
is held in custody by designated custodians, supported by one or more Metal Adjustment Agreements (and
“Metal Adjustment Contracts” entered into pursuant thereto). Each class of Currency-Hedged Metal Security
is issued under limited recourse arrangements whereby the holders have recourse only to the relevant Metal
Bullion and Metal Adjustment Contracts held to support the Currency-Hedge Metal Securities and not to the
Metal Bullion and Metal Adjustment Contracts of any other class of Currency-Hedged Metal Security or to the
Company.
The Currency-Hedged Metal Securities are secured on an amount of Metal Bullion and Metal Adjustment
Contracts equivalent to the entitlement in respect of each Currency-Hedged Metal Security (referred to as
the “Metal Entitlement”) which is calculated in accordance with an agreed formula published in the
Prospectus. The Company holds Metal Bullion and enters into Metal Adjustment Contracts to support the
Currency-Hedged Metal Securities as determined by the Metal Entitlement. The Company does not make
gains from trading in the underlying Metal Bullion and Metal Adjustment Contracts. As a result (and with the
exception of the impact of applicable fees), from a commercial perspective gains and losses in respect of
Metal Bullion and Metal Adjustment Contracts will always be offset by a corresponding loss or gain on the
Currency-Hedged Metal Securities and therefore commercially the Company does not retain any net gains or
losses or net risk exposures. However, the difference in valuation between Metal Bullion and Metal
Adjustment Contracts and Currency-Hedged Metal Securities creates a mis-match between values reported
within these financial statements. This difference in valuation would be reversed on a subsequent
redemption of the Currency-Hedged Metal Securities and transfer of the corresponding Metal Bullion. Further
details are disclosed within the Accounting Policies and in note 16, with additional information regarding the
risks of the Company disclosed in note 13. Furthermore, the Company presents an adjusted Statement of
Profit or Loss and Other Comprehensive Income and an adjusted Statement of Changes in Equity in note 16
of the financial statements to reflect the economic results of the Company through the reversal of the
difference in valuation between Metal Bullion and Metal Adjustment Contracts and Currency-Hedged Metal
Securities given the gain or loss would be reversed on a subsequent redemption of the Currency-Hedged
Metal Securities and transfer of the corresponding Metal Bullion, and therefore will not be realised.
Exchange traded products are not typically actively managed, are significantly lower in cost when compared
to actively managed mutual funds and are easily accessible to investors. No active trading or management of
Metal Bullion and Metal Adjustment Contracts is required because the Company only receives or delivers
Metal Bullion on the issue and redemption of Currency-Hedged Metal Securities, and only holds Metal
Bullion and enters into Metal Adjustment Contracts to support the Currency-Hedged Metal Securities.
The Company is entitled to:
(1)
a management fee and a hedging fee calculated by reducing the Metal Entitlement of each class of
Currency-Hedged Metal Security on a daily basis by an agreed amount (the “Management Fee” and
the “Hedging Fee”); and
(2)
creation and redemption fees on the issue and redemption of the Currency-Hedged Metal Securities.
No creation or redemption fees are payable to the Company when investors trade in the Currency-Hedged
Metal Securities on a listed market such as the London Stock Exchange. Creation and redemption fees may
also be waived with certain approved persons where applicable.
The Hedging Fee income is matched by an equivalent expense payable to the FX Counterparty. In addition,
the Company has entered into a service agreement with WisdomTree Management Jersey Limited (“ManJer”
or the “Manager”), whereby ManJer is responsible for supplying or procuring the supply of all management
and administration services required by the Company (including marketing), as well as the payment of costs
relating to the listing and issuance of Currency-Hedged Metal Securities. In return for these services, the
Company pays ManJer an amount equal to the Management Fee and the creation and redemption fees
earned (the “ManJer Fee”). As a result, the Company recognises a result before fair value movements of nil
for each period.
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WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
2.
Accounting Policies
The main accounting policies of the Company are described below.
Basis of Preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRSs”) as issued by the International Accounting Standards Board (“IASB”), and interpretations issued by
the International Financial Reporting Interpretations Committee of the IASB. The financial statements have
been prepared under the historical cost convention, as modified by the revaluation of physical metal bullion,
financial assets and financial liabilities held at fair value through profit or loss.
Critical Accounting Estimates and Judgements
The presentation of financial statements in conformity with IFRSs requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in the process of applying the
Company’s accounting policies.
The Company makes estimates and assumptions that affect the reported amounts of assets and liabilities.
Estimates are continually evaluated and based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances. The key
accounting judgements required to prepare these financial statements are:
1.
In respect of the presentation of non-statutory and non-GAAP adjustments to the Statement of Profit or Loss
and Other Comprehensive Income and the Statement of Changes in Equity, as disclosed in note 16.
2.
The determination of the appropriate accounting policy to be applied to Metal Bullion.
Under IFRS there is no standard treatment for the classification of physical metals (as they do not meet
the definition of a financial asset, cash, inventory or property, plant or equipment) therefore the election
of how to treat physical metals is left to some interpretation for companies which hold these assets. The
Metal Bullion is held to provide the security holders with the exposure to changes in the fair value of
Metal Bullion and therefore the Directors consider that carrying the Metal Bullion at fair value through
profit or loss, consistent with the treatment that would be applicable to a financial instrument, reflects the
objectives and the purpose of holding the asset.
The directors do not consider that any significant estimates have been applied in the preparation of these
financial statements.
Going Concern
The nature of the Company’s business dictates that the outstanding Currency-Hedged Metal Securities may
be redeemed at any time by Authorised Participants and in certain circumstances by individual holders and
also, in certain circumstances, may be compulsorily redeemed by the Company. As the redemption of
Currency-Hedged Metal Securities will always coincide with the transfer of an equal amount (in value) of
Metal Bullion, and furthermore, the Company will hold the Metal Bullion received to support the Currency-
Hedged Metal Securities issued and will only transfer out Metal Bullion to facilitate the payment of
Management Fee and the Hedging Fee or the redemption of Currency-Hedged Metal Securities, liquidity risk
is mitigated such that there is no material residual risk. All other expenses of the Company are met by
ManJer. The directors closely monitor the financial position and performance of ManJer, its assets under
management, and therefore its related revenue streams, in respect of fulfilling the obligations under the
services agreement in place. The directors consider the operations of the Company to be ongoing, with a
reasonable expectation that the Company has adequate resources to continue in operational existence until
30 April 2023, and accordingly these financial statements have been prepared on the going concern basis.
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WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
2.
Accounting Policies (continued)
Accounting Standards
(a)
Standards, amendments and interpretations considered by the Company:
The following standards that have been revised, issued and became effective but are not considered
applicable to the Company:
•
Amendments to IFRS 16 Leases
•
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 to address the accounting issues that arise when
financial instruments are modified from referencing an IBOR
There were no other new standards, amendments and interpretations adopted in the current year that
resulted in a significant effect on these financial statements.
(b)
New and revised IFRSs in issue but not yet effective:
The Company has not applied the following new and revised IFRSs that have been issued but are not
yet effective:
•
IFRS 17 Insurance Contracts (effective for annual periods beginning on or after 1 January 2023)
•
Amendments to IAS 1 Presentation of Financial Statements (effective for annual periods beginning
on or after 1 January 2023)
•
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (effective
for annual periods beginning on or after 1 January 2023)
•
Amendments to IAS 12 Deferred Tax (effective for annual periods beginning on or after 1 January
2023)
•
Amendments to IAS 16 Property, Plant and Equipment (effective for annual periods beginning on or
after 1 January 2022)
•
Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets (effective for
annual periods beginning on or after 1 January 2022)
•
Annual Improvements to IFRS (impacting IFRS 1, IFRS 9 and IAS 41)
The directors do not expect the adoption of the above standards, amendments and interpretations that
are in issue but not yet effective will have a material impact on the financial statements of the Company
in future periods.
Currency-Hedged Metal Securities
i)
Issue and Redemption
Each time a Currency-Hedged Metal Security is issued or redeemed by the Company a corresponding
amount of Metal Bullion is transferred into or from the relevant secured account held by the Custodian.
Upon initial recognition, the fair value is recorded using the fixing price published by the London Bullion
Market Association (“LBMA”) applied to the underlying Metal Bullion transferred.
Financial assets and liabilities are recognised and de-recognised on the transaction (trade) date.
ii)
Classification at fair value through Profit or Loss
Currency-Hedged Metal Securities comprise a financial instrument whose redemption price is linked to
the underlying Metal Bullion and Metal Adjustment Contracts. The Currency-Hedged Metal Securities are
classified as financial liabilities measured at fair value through profit or loss under IFRS 9 due to an
embedded derivative. This also significantly reduces a measurement or recognition inconsistency that
would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them
on different bases.
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WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
2.
Accounting Policies (continued)
Currency-Hedged Metal Securities (continued)
iii)
Pricing
A price is established in respect of each class of Currency-Hedged Metal Security for each type and
currency of bullion as at the end of each Pricing Day by reference to the MSPM indices published by
Morgan Stanley & Co. LLC (“Morgan Stanley”) (collectively referred to within these financial statements
as the ‘Contractual Value’).
Prior to 29 October 2020 the MSPM indices were calculated by reference to the gold bullion futures
benchmark price (COMEX) adjusted by an Exchange for Physical (an adjustment, calculated by Morgan
Stanley that translates a futures price into a current spot price). Since 29 October 2020 the reference
price used to convert the value of the currency hedge into a quantity of Metal Bullion is the spot rate for
Metal Bullion, as published by the LBMA.
IFRS 13 requires the Company to identify the principal market and to utilise the available price within that
principal market. The directors consider the stock exchanges where the Currency-Hedged Metal
Securities are listed to be the principal market and as a result the fair value of the Currency-Hedged
Metal Securities is the on-exchange price as quoted on the stock exchange demonstrating active trading
with the highest trading volume on each day that the price is obtained. The Currency-Hedged Metal
Securities are priced using the mid-market price on the Statement of Financial Position date.
A difference arises between the value of Metal Bullion and Metal Adjustment Contracts (held to support
the Currency-Hedged Metal Securities) and Currency-Hedged Metal Securities (at market value)
presented in the Statement of Financial Position. This difference is reversed on a subsequent
redemption of the Currency-Hedged Metal Securities and the transfer of the corresponding Metal Bullion.
Metal Bullion and Metal Adjustment Contracts
The Company holds Metal Bullion and Metal Adjustment Contracts equal to the amount due to holders of
Currency-Hedged Metal Securities solely for the purposes of meeting its obligations under the Currency-
Hedged Metal Securities.
As described above, under IFRS there is no standard treatment for the classification of physical metals. The
Metal Bullion and Metal Adjustment Contracts are held to provide the security holders with the exposure to
changes in the fair value of Metal Bullion and Metal Adjustment Contracts and therefore the Directors
consider that carrying the Metal Bullion and Metal Adjustment Contracts at fair value through profit or loss,
consistent with the treatment that would be applicable to a financial instrument, reflects the objectives and
the purpose of holding the asset.
Metal Bullion is priced on a daily basis based on the amount of Metal Bullion held using the latest fixing price
published by the LBMA, and is considered to be the fair value of the Metal Bullion. Also on a daily basis an
amount is transferred to Metal Bullion held in respect of the Management Fee and the Hedging Fee of each
class of security.
Metal Adjustment Contracts comprise a financial instrument whose value is linked to the underlying Metal
Bullion, classified as financial assets or financial liabilities at fair value through profit or loss.
Metal Adjustment Contracts are marked to fair value at the end of each Pricing Day by reference to the
MSPM indices published by Morgan Stanley, converted to an equivalent Metal Bullion exposure. Since 29
October 2020 the reference price used to convert the value of the currency hedge into a quantity of Metal
Bullion is the spot rate for Metal Bullion, as published by LBMA. The amount receivable or payable at the
Statement of Financial Position date is valued using the latest price published by the LBMA.
This valuation of the Metal Bullion and Metal Adjustment Contracts is equivalent to the calculated exposure
represented by the Metal Entitlement of each class of Currency-Hedged Metal Security and is referred to as
the ‘Contractual Value’.
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WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
2.
Accounting Policies (continued)
Metal Bullion and Currency-Hedged Metal Securities Awaiting Settlement
The issue and redemption of Currency-Hedged Metal Securities, and the transfer of Metal Bullion is
accounted for on the transaction date. The transaction will not settle until two days after the transaction date.
Where transactions are awaiting settlement at the year end, the value of the Metal Bullion and the Currency-
Hedged Metal Securities due to be settled is separately disclosed within the relevant assets and liabilities on
the Statement of Financial Position. The fair value of these receivables and payables is considered
equivalent to their carrying value.
Metal Bullion Held in Respect of Fees and Fees Payable in Metal Bullion
Management Fees and Hedging Fees are accrued by reducing the Metal Entitlement of each class of
Currency-Hedged Metal Security on a daily basis by an agreed amount. These fees are recognised in Metal
Bullion, recorded at fair value through profit or loss in accordance with the accounting judgement set out
above in respect of Metal Bullion. The amount recognised at the Statement of Financial Position date is
revalued using the latest price published by the LBMA.
Management Fees and FX Counterparty Fees payable are also accrued based on the income accrued in
accordance with the agreement with ManJer and the FX Counterparty. These fees are payable in Metal
Bullion, recorded at fair value through profit or loss to significantly reduce a measurement or recognition
inconsistency that would otherwise arise from measuring assets or liabilities, or recognising the gains and
losses on them, on different bases). The payable at the Statement of Financial Position date is revalued
using the latest price published by the LBMA.
Overdraft Facility
The Company has entered into an overdraft agreement with the custodian in respect of each class of
Currency-Hedged Metal Securities which each allow for the loan of up to one bullion bar of gold (collectively
the “Overdraft Facility”). The Overdraft Facility is denominated in ounces of Metal Bullion, repayable in
ounces of Metal Bullion equivalent to the Metal Bullion on Loan. The Overdraft Facility is recorded at the fair
value of the ounces of Metal Bullion using the latest price published by the LBMA and changes in fair value
are recognised through profit or loss.
Metal Bullion on Loan
The gold held under the Overdraft Facility (the “Metal Bullion on Loan”) is used by the Company to ensure all
WisdomTree Physical Gold - GBP Daily Hedged Securities and WisdomTree Physical Gold - EUR Daily
Hedged Securities are supported by the physical holdings of gold in allocated form. The Metal Bullion on
Loan is recorded at fair value using the latest price published by the LBMA. Changes in fair value are
recognised through profit or loss.
Other Financial Assets and Liabilities
Other financial assets and liabilities are non-derivative financial assets and liabilities including trade and
other receivables and trade and other payables (primarily Creation and Redemption Fees) with a fixed
payment amount and are not quoted in an active market. After initial measurement the other financial assets
and liabilities are subsequently measured at amortised cost using the effective interest method less any
allowance for expected credit losses (in respect of financial assets only). The effective interest method is a
method of calculating the amortised cost of an instrument and of allocating interest over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash flows (including all fees
paid or received that form an integral part of the effective interest rate, transaction costs and other premiums
or discounts) through the expected life of the instrument, or, where appropriate, a shorter period, to the net
carrying amount on initial recognition. Impairment losses, including reversals of impairment losses and
impairment gains, are recorded through profit or loss.
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WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
2.
Accounting Policies (continued)
Reserves
A revaluation reserve and a retained earnings reserve are maintained within equity. All profit or loss is taken
to the retained earnings reserve at the end of the accounting period to which it relates and the gain or loss
relating to the mis-match of accounting values is transferred to the non-distributable revaluation reserve as
the balance relates to unrealised gains and losses on Metal Bullion and Metal Adjustment Contracts (held to
support the Currency-Hedged Metal Securities) and Currency-Hedged Metal Securities, which will be
reversed on a subsequent redemption of the Currency-Hedged Metal Securities and the related transfer of
Metal Bullion and will therefore not be realised.
Income
The Company derives its income over time (in respect of Management Fees and Hedging Fees), and at a
point in time (in respect of creation and redemption fees) as follows:
i)
Management Fees and Hedging Fees
Management Fees and Hedging Fees are calculated by applying a fixed percentage to reduce the Metal
Entitlement of each class of Currency-Hedged Metal Securities on a daily basis in accordance with the
terms of the securities issued. The change in Metal Entitlement of each class of Currency-Hedged Metal
Security reduces the value of the Currency-Hedged Metal Securities. This reduction equates to the
Management Fee and Hedging Fee amount in Metal Bullion, that is recognised for that day per each
Currency-Hedged Metal Security in issue on that day. The Management Fees and Hedging Fees are
accrued and recognised on a daily basis until invoiced and settled by transfer of the Metal Bullion. The
amount recognised as income is calculated by applying the average LBMA Price to the total
Management Fee and Hedging Fee accrued on a monthly basis.
ii)
Creation and Redemption Fees
Fees for the issue and redemption of Currency-Hedged Metal Securities are recognised at the fair value
of the consideration expected to be received, on the date on which the transaction becomes legally
binding. Accrued creation and redemption fees are invoiced and settled on a quarterly basis.
Foreign Currency
The financial statements of the Company are presented in the currency in which the prices of the Metal Bullion are
determined together with the denomination of the Metal Adjustment Contracts entered into to support the
Currency-Hedged Metal Securities issued by the Company (its functional currency). For the purpose of the
financial statements, the results and financial position of the Company are expressed in United States Dollars,
which is the functional currency of the Company, and the presentational currency of the financial statements.
Transactions in foreign currencies are initially recorded at the spot rate at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies at the year-end date are translated at rates
ruling at that date. Creation and redemption fees are translated at the average rate for the month in which
they are incurred. The resulting differences are accounted for through profit or loss.
Segmental Reporting
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the
Company that are regularly reviewed by the Chief Operating Decision Maker (“CODM”) in order to allocate
resources to the segments and to assess their performance. The CODM has been determined as the board
of directors. A segment is a distinguishable component of the Company that is engaged either in providing
products or services (business segment), or in providing products and services within a particular economic
environment (geographical segment), which is subject to risks and rewards that are different from those of
other segments.
The Company has not provided segmental information as the Company has only one business or product
group, precious metals, and one geographical segment which is Europe. In addition, the Company has no
single major customer from which greater than 10% of income is generated. All information relevant to the
understanding of the Company’s activities is included in these financial statements.
- 26 -www.wisdomtree.eu
WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
Audit Fees for the year of GBP 21,300 will be met by ManJer (2020: GBP 20,130).
4.
Taxation
The Company is subject to Jersey Income Tax. During the year the Jersey Income Tax rate applicable to the
Company is zero percent (2020: zero percent).
5.
Metal Bullion Held in Respect of Fees
As at 31 December
20212020
USDUSD
Management Fees and Hedging Fees are recognised in Metal Bullion and are recorded at fair value.
6.
Trade and Other Receivables
The fair value of the receivables is equal to the carrying value. The Trade and Other Receivables are due to
be recovered within 12 months of the year end.
- 27 -www.wisdomtree.eu
WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
The Company holds Metal Bullion and Metal Adjustment Contracts to support the Currency-Hedged Metal
Securities as determined by the Metal Entitlement (which is calculated in accordance with an agreed formula
published in the Prospectus). In accordance with the Metal Adjustment Agreements, the Metal Adjustment
Contracts can be converted into Metal Bullion. As a result, the Metal Bullion together with the Metal
Adjustment Contracts provides the aggregate Metal Bullion Exposure required by the Metal Entitlement of
each class of Currency-Hedged Metal Security.
As at the year end, there can be certain amounts of Metal Bullion awaiting settlement in respect of the
creation or redemption of Currency-Hedged Metal Securities with transaction dates before the year end and
settlement dates in the following year:
•
The amount receivable as a result of unsettled redemptions is USD nil (2020: USD 1,669,595).
•
The amount payable as a result of unsettled creations is USD nil (2020: USD 1,967,143).
The below reconciliation of changes in the Metal Bullion includes only non-cash changes.
8.
Currency-Hedged Metal Securities
Whilst the Currency-Hedged Metal Securities are quoted on the open market, the Company’s ultimate liability
relates to its contractual obligations to issue and redeem Currency-Hedged Metal Securities in exchange for Metal
Bullion and Metal Adjustment Contracts as determined by the Metal Entitlement of each class of Currency-Hedged
Metal Security on each trading day. The fair value of each creation and redemption of Currency-Hedged Metal
Securities is recorded using the price provided by the LBMA on the transaction date, and is the “Contractual
Value”. The issue and redemption of Currency-Hedged Metal Securities is recorded at a value that corresponds to
the value of the Metal Bullion transferred in respect of the issue and redemption.
- 28 -www.wisdomtree.eu
WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
8.
Currency-Hedged Metal Securities (continued)
As a result, the Company has no net exposure to gains or losses on the Currency-Hedged Metal Securities
and Metal Bullion and Metal Adjustment Contracts.
The Company measures the Currency-Hedged Metal Securities at their fair value in accordance with IFRS
13 rather than at the Contractual Value described above. The fair value is the price quoted on stock
exchanges or other markets where the Currency-Hedged Metal Securities are listed or traded. The fair
values and changes thereof during the year based on prices available on the open market as recognised in
the financial statements are:
As at 31 December
20212020
USDUSD
The contractual values and changes thereof during the year based on the contractual settlement values are:
As at 31 December
20212020
USDUSD
The gain or loss on the difference between the value of the Metal Bullion and Metal Adjustment Contracts
and the fair value of Currency-Hedged Metal Securities would be reversed on a subsequent redemption of
the Currency-Hedged Metal Securities and transfer of the corresponding Metal Bullion. Refer to note 16 for
the non-statutory and non-GAAP adjustments which reflect the results of this reversal.
As at the year end, there can be certain amounts of Metal Bullion awaiting settlement in respect of the
creation or redemption of Currency-Hedged Metal Securities with transaction dates before the year end and
settlement dates in the following year:
•
The amount payable as a result of unsettled redemptions of Currency-Hedged Metal Securities is
USD nil (2020: USD 1,967,143).
•
The amount receivable as a result of unsettled creations of Currency-Hedged Metal Securities is
USD nil (2020: USD 1,669,595).
The below reconciliation of changes in the Currency-Hedged Metal Securities, being liabilities arising from
financing activities, includes only non-cash changes.
WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
9.
Overdraft Facility
The Overdraft Facility, pursuant to the overdraft agreements entered into with the custodian, allows for the
loan of up to one bullion bar of gold (per class of Currency-Hedged Metal Security). The gold held under the
Overdraft Facility (the “Metal Bullion on Loan”) is used by the Company to ensure all WisdomTree Physical
Gold - GBP Daily Hedged Securities and WisdomTree Physical Gold - EUR Daily Hedged Securities are
supported by holdings of gold in allocated form.
The Company had Metal Bullion drawn under the Overdraft Facilities as follows:
The Metal Bullion on Loan and the Overdraft Facilities are recorded at the fair value of the Metal Bullion.
10.
Trade and Other Payables
As at 31 December
20212020
USDUSD
Management Fees and Hedging Fees are payable by transfer of Metal Bullion are recorded at fair value. The
fair value of the remaining payables is equal to the carrying value. The ManJer Fee and FX Counterparty
Fee payable are due to be settled within 12 months of the year end.
11.
Stated Capital
As at 31 December
20212020
USDUSD
2 Shares of Nil Par Value, Issued at GBP 1 Each and Fully
The Company can issue an unlimited capital of nil par value shares in accordance with its Memorandum of
Association.
All Shares issued by the Company carry one vote per Share without restriction and carry the right to dividends.
All Shares are held by WisdomTree Holdings Jersey Limited (“HoldCo”).
- 30 -www.wisdomtree.eu
WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
12.
Related Party Disclosures
Entities and individuals which have significant influence over the Company, either through ownership or by virtue
of being a director of the Company are considered to be related parties. In addition, entities with common
ownership to the Company and entities with common directors are also considered to be related parties.
Fees charged by ManJer during the year:
Year ended 31 December
20212020
USDUSD
The following balances were due to ManJer at year end:
As at 31 December
20212020
USDUSD
At 31 December 2021, USD 3 is receivable from ManJer (2020: USD 3).
As disclosed in the Directors’ Report, ManJer paid Directors’ Fees in respect of the Company of GBP 16,000
(2020: GBP 16,000).
Steven Ross is a director of R&H Fund Services (Jersey) Limited (“R&H” or the “Administrator”) and a partner of
Rawlinson & Hunter, Jersey Partnership, which wholly owns R&H. Christopher Foulds is a senior employee of
R&H. During the year, R&H charged ManJer administration fees in respect of the Company of GBP 40,136 (2020:
GBP 40,136), of which GBP 10,034 (2020: GBP 10,034) was outstanding at the year end.
Peter Ziemba and Stuart Bell are executive officers of WisdomTree Investments, Inc.
13.
Financial Risk Management
The Company is exposed to a number of risks arising from its activities including settlement risk, credit risk,
liquidity risk and market risk. The Board is responsible for the overall risk management approach and for
approving the risk management strategies and principles. The Board meets frequently to consider the risk
exposures of the Company and to determine appropriate management policies. The risk management
policies employed by the Company to manage these are discussed below.
The Currency-Hedged Metal Securities are subject to normal market fluctuations and other risks inherent in
investing in securities and other financial instruments. There can be no assurance that any appreciation in
the value of securities will occur, and the capital value of an investor’s original investment is not guaranteed.
The value of investments may go down as well as up, and an investor may not get back the original amount
invested.
The information provided below is not intended to be a comprehensive summary of all the risks associated
with the Currency-Hedged Metal Securities and investors should refer to the most recent Prospectus for a
detailed summary of the risks inherent in investing in the Currency-Hedged Metal Securities. Any data
provided should not be used or interpreted as a basis for future forecast or investment performance.
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WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
13.
Financial Risk Management (continued)
(a)
Settlement Risk
Settlement risk primarily refers to the risk that an Authorised Participant, the Custodian or the FX
Counterparty will default on its contractual obligations resulting in financial loss.
The directors believe that settlement risk would only be caused by the risk of the Company’s trading counterparty
not delivering Metal Bullion, entering into Metal Adjustment Contracts or delivering Currency-Hedged Metal
Securities on the settlement date. The Currency-Hedged Metal Securities settle through the CREST system. The
directors feel that this risk is mitigated as Currency-Hedged Metal Securities are not issued until the required
amount of Metal Bullion has been received in the Custodian account, and Metal Bullion is not transferred until the
relevant Currency-Hedged Metal Securities have been delivered in CREST. As a result each transaction does not
settle until all parties have fulfilled their contractual obligations.
Amounts outstanding in respect of positions yet to settle are disclosed in notes 7 and 8.
(b)
Credit Risk
Credit risk primarily refers to the risk that Authorised Participants, the Custodian or the FX Counterparty will
default on their contractual obligations resulting in financial loss. Each class of Currency-Hedged Metal
Security is issued under limited recourse arrangements whereby the holders have recourse only to the Metal
Bullion and Metal Adjustment Contracts (held to support the Currency-Hedged Metal Securities) and not to
the Metal Bullion and Metal Adjustment Contracts of any other class of Currency-Hedged Metal Security or to
the Company, therefore limiting the credit risk of the Company in connection with the issue of the Currency-
Hedged Metal Securities.
The total carrying amounts of the amounts receivable awaiting settlement and trade and other receivables
best represent the maximum credit risk exposure at the Statement of Financial Position date. At the reporting
date the Company’s amounts receivable awaiting settlement and trade and other receivables are detailed on
the Statement of Financial Position. Credit risk is managed by the Company by only dealing with Authorised
Participants who are believed to be creditworthy. In the event the Authorised Participants fail to complete
their obligation, no Currency-Hedged Metal Securities will be created therefore the Company does not have
the risk of loss of the amount expected to be received.
Credit risk also includes custodial risk. The custodian is not required to take out insurance and neither is the
Trustee. Accordingly, there is a risk that the secured Metal Bullion could be lost, stolen or damaged and the
Company would not be able to satisfy its obligations in respect of the Currency-Hedged Metal Securities.
Currently JP Morgan Chase Bank, NA is the only custodian.
There is also a credit risk arising from the FX Counterparty to repay the FX component of the redemption price
and may be affected by the credit rating attached to the FX Counterparties (currently the only FX Counterparty is
Morgan Stanley). The Company manages its credit risk by only entering into Metal Adjustment Agreement
Contracts with FX Counterparties who are believed to be creditworthy. The carrying amounts of the Metal
Adjustment Contracts best represent the maximum credit risk exposure at the Statement of Financial Position date
and is presented in note 7. The Board monitors credit risk exposure including through an assessment of the credit
rating for Morgan Stanley to ensure the Company’s exposure is managed.
The Board monitors credit risk exposure in order to ensure the Company’s exposure is managed, and has
continued to do so more closely with a focus on any potential impact of, or developments relating to the
spread of COVID-19, which is fluid and rapidly changing.
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WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
13.
Financial Risk Management (continued)
(c)
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with
its financial liabilities as they fall due. The Company’s receivables and payables are all payable on demand
and generally settled on a short-term basis. Liquidity risk in respect of receivables and payables related to
income and expenses is mitigated as Metal Bullion in respect of the Management Fee and the Hedging Fee
are retained by the Company on a daily basis, in order for the related ManJer expense accumulated (for the
month, in arrears) to be settled (in Metal Bullion) once invoiced, and amounts in respect of the creation and
redemption fees are transferred from the relevant counterparties directly to ManJer and there are no related
cash flows through the Company.
The Currency-Hedged Metal Securities do not have a contractual maturity date and will only be redeemed at
the request of the holder of the security, which may be requested at any time, with the transaction settling
through the transfer of the required Metal Bullion two days after the transaction date, or in the case of a
compulsory redemption by either transferring the required Metal Bullion, or by realising the Metal Bullion for
cash and settling the cash proceeds to holders on a short-term basis. Generally, Authorised Participants can
submit applications and redemptions directly with the Company.
When Currency-Hedged Metal Securities are redeemed, the Company transfers the corresponding amount
of Metal Bullion determined by the Metal Entitlement of those Currency-Hedged Metal Securities. The value
of the Metal Bullion returned will always be the same as that of the Currency-Hedged Metal Securities being
redeemed, therefore any redemption of Currency-Hedged Metal Securities would not impact the liquidity of
the Company. Furthermore, while the agreements with the FX Counterparties include limits (both daily and in
the aggregate), the Company is not obliged to issue and redeem Currency-Hedged Metal Securities in
excess of those limits under the terms of the Metal Adjustment Agreement.
Consequently, the Company has not presented any tabular information in respect of liquidity risk.
(d)
Capital Management
The primary objective of the Company’s capital management policy is to ensure that it maintains sufficient
resources for operational purposes. The capital being managed is the Stated Capital as presented in the
Statement of Changes in Equity. Retained Earnings and the Revaluation Reserve, as presented in the
Statement of Changes in Equity, are not considered managed capital as these balances relate to unrealised
gains and losses on Metal Bullion and Metal Adjustment Contracts (held to support the Currency-Hedged
Metal Securities) and Currency-Hedged Metal Securities, which are reversed on a subsequent redemption of
the Currency-Hedged Metal Securities and the related transfer of Metal Bullion and will therefore not be
realised. The Company is not subject to any capital requirements imposed by a regulator and there were no
changes in the Company’s approach to capital management during the year.
The Company’s principal activity is the issue and listing of Currency-Hedged Metal Securities. These
Currency-Hedged Metal Securities are issued and redeemed as demand requires. The Company holds a
corresponding amount of Metal Bullion and Metal Adjustment Contracts which matches the total liability of
the Currency-Hedged Metal Securities issued. ManJer supplies or arranges for the supply of all management
and administration services to the Company and pays all management and administration costs of the
Company. In return for these services the Company pays ManJer a fee, which under the terms of the service
agreement is equal to the aggregate of the Management Fee and creation and redemption fees earned.
As all Currency-Hedged Metal Securities in issue are supported by an equivalent amount of Metal Bullion
and Metal Adjustment Contracts held, and the running costs of the Company are paid by ManJer, the
directors of the Company consider the capital management and its current capital resources are adequate to
maintain the ongoing listing and issue of Currency-Hedged Metal Securities.
- 33 -www.wisdomtree.eu
WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
13.
Financial Risk Management (continued)
(e)
Sensitivity Analysis
IFRS 7 requires disclosure of a sensitivity analysis for each type of market risk to which the Company is
exposed to at the reporting date, showing how profit or loss and equity would have been affected by a
reasonably possible change to the relevant risk variable.
The Company’s rights and liabilities in respect of Metal Securities relate to its contractual obligations to issue
and redeem Currency-Hedged Metal Securities in exchange for Metal Bullion as determined by the Gold
Entitlement on each trading day. The fair value of each creation and redemption of Currency-Hedged Metal
Securities is recorded using the price provided by the LBMA on the transaction date. However, under IFRS
13, the liability is recorded at fair value (being the on-exchange price) which results in a mismatch. As
described in note 16 this mismatch is reversed on the redemption of Currency-Hedged Metal Securities.
As a result, the Company’s contractual and economic liability in connection with the issue and redemption of
Currency-Hedged Metal Securities is matched by movements in the corresponding Metal Bullion. Whilst
sensitivity analysis could be performed on this mismatch, the Company does not ultimately have economic to
the on-exchange price, but to the contractual liability of the Currency-Hedged Metal Securities and
consequently, the Company does not have any net exposure to market price risk. Furthermore the result of
the numeric sensitivity is considered not material by the directors and in their opinion, no sensitivity analysis
is required to be disclosed.
(f)
Market Risk
Market risk is the risk that changes in market prices (such as equity and bullion prices, interest rates and
foreign exchange rates) will affect the Company’s income or the value of its financial instruments held or
issued.
i)
Price Risk
As described above, Currency-Hedged Metal Securities provide investors with exposure to precious metals.
During the year ended 31 December 2021, the price of gold dropped 3.75%. Coupled with the impact in
changes between the value of the US Dollar against the British Pound and the Euro, WisdomTree Physical
Gold - GBP Daily Hedged Securities dropped in value by 5.53% and WisdomTree Physical Gold
-
EUR Daily Hedged Securities dropped in value by 12.98% between 31 December 2020 and 31
December 2021.
The value of the Company’s liability in respect of the Currency-Hedged Metal Securities fluctuates
according to the value of the Metal Bullion and Metal Adjustment Contracts. The risk of such change in
price is managed by the Company holding Metal Bullion and Metal Adjustment Contracts in the same
quantity as its liability. Whilst the Currency-Hedged Metal Securities are quoted on the open market, the
Company’s ultimate liability relates to its contractual obligations to issue and redeem Currency-Hedged
Metal Securities in exchange for Metal Bullion as determined by the Metal Entitlement on each trading
day. The Company measures the Currency-Hedged Metal Securities at their fair value in accordance
with IFRS 13 rather than at the Contractual Value (as described in the Prospectus). The gain or loss on
the difference between the value of the Metal Bullion and Metal Adjustment Contracts and the fair value
of Currency-Hedged Metal Securities would be reversed on a subsequent redemption of the Currency-
Hedged Metal Securities and transfer of the corresponding Metal Bullion. Refer to note 9 for the further
details regarding fair values.
Therefore, the Company bears no residual financial risk from a change in the price of Metal Bullion and
Metal Adjustment Contracts. Furthermore, the impact of price sensitivity is considered immaterial to
these financial statements.
However, there is an inherent risk from the point of view of investors as the values of Metal Bullion and
Metal Adjustment Contracts and the value of the Currency-Hedged Metal Securities may vary widely due
to, amongst other things, changes in exchange rates, changing supply or demand for Metal Bullion,
government and monetary policy or intervention, interest rate levels and global or regional political,
economic or financial events.
- 34 -www.wisdomtree.eu
WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
13.
Financial Risk Management (continued)
(f)
Market Risk (continued)
i)
Price Risk (continued)
The market price of Currency-Hedged Metal Securities is (and will remain) a function of supply and
demand amongst investors wishing to buy and sell Currency-Hedged Metal Securities and the bid-offer
spread that the market makers are willing to quote. This is highlighted further in note 16, and below
under the Fair Value Hierarchy.
Coronavirus disease (COVID-19)
The COVID-19 pandemic continues to persist and the ultimate duration of the pandemic and its short-
term and long-term impact on the global economy is unknown. National governments and supranational
organisations in multiple states continue taking steps designed to protect their populations from COVID-
19, including requiring or encouraging home working, the cancellation of sporting, cultural and other
events and restricting or discouraging gatherings of people.
COVID-19 has created market turmoil and increased market volatility generally. Mutations in the virus, a
setback in vaccine distribution and negative global economic consequences arising from the pandemic,
amongst other factors, could have a future adverse impact on the global financial markets. The steps
outlined above, and public sentiment, may affect both the volatility and prices of bullion and hence the
prices of the Currency-Hedged Metal Securities, and such effects may be significant and may be long-
term in nature. The directors closely monitor the financial position and performance of ManJer, its assets
under management, and therefore its related revenue streams, in respect of fulfilling the obligations
under the services agreement. The directors’ consideration in respect of the going concern position of
the Company is set out in note 2.
ii)
Interest Rate Risk
The Company does not have significant exposure to interest rate risk as the Metal Bullion, the Metal
Adjustment Contracts and the Currency-Hedged Metal Securities do not bear any interest.
iii)Currency Risk
The Company has exposure to currency risk as the Currency-Hedged Metal Securities are priced in US
Dollars and hedged against exchange rate movements between the US Dollar and the Euro or Pound
Sterling. However, the directors do not consider the Company to have a significant exposure to currency
risk arising from the current economic uncertainties facing a number of countries around the world as the
gains or losses on the liability represented by the Currency-Hedged Metal Securities are matched
economically by corresponding losses or gains attributable to the Metal Bullion and Metal Adjustment
Contracts.
(g)
Fair Value Hierarchy
The levels in the hierarchy are defined as follows:
•
Level 1
•
Level 2
•
Level 3
fair value based on quoted prices in active markets for identical assets.
fair values based on valuation techniques using observable inputs other than quoted prices.
fair values based on valuation techniques using inputs that are not based on observable
market data.
Categorisation within the hierarchy is determined on the basis of the lowest level input that is significant to
the fair value measurement of each relevant asset/liability.
The Company is required to utilise the available on-market price as the Currency-Hedged Metal Securities
are quoted and actively traded on the open market. Therefore Currency-Hedged Metal Securities are
classified as Level 1 financial liabilities.
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WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
13.
Financial Risk Management (continued)
(g)
Fair Value Hierarchy (continued)
The Company holds Metal Bullion and Metal Adjustment Contracts to support the Currency-Hedged Metal
Securities as determined by the Metal Entitlement (which is calculated in accordance with an agreed formula
published in the Prospectus). The Company has contractual obligations to issue and redeem Currency-
Hedged Metal Securities in exchange for Metal Bullion as determined by the Metal Entitlement of each class
of Metal Security on each trading day. The fair value of each creation and redemption of each type and
currency of bullion is calculated by reference to the MSPM indices published by Morgan Stanley. Therefore,
Metal Bullion and Metal Adjustment Contracts are classified as level 2 assets (or liabilities), as the value is
calculated using third party pricing sources supported by observable, verifiable inputs.
The categorisation of the Company’s assets and (liabilities) are as shown below:
The Currency-Hedged Metal Securities and Metal Bullion together with the Metal Adjustment Contracts are
recognised at fair value through profit or loss upon initial recognition and revalued to fair value in line with the
Company’s accounting policy. There are no assets or liabilities classified in level 3.
Transfers between levels would be recognised if there was a change in circumstances that prevented public
information in respect of Level 1 inputs from being available. Any such transfers would be recognised on the
date of the change in circumstances that cause the transfer. There were no transfers or reclassifications
between Level 1 and Level 2 for any of the assets or liabilities during the year.
14.
Ultimate Controlling Party
In accordance with the disclosure requirements of IFRS the directors have determined that no entity meets
the definition of immediate parent or ultimate controlling party. The holder of issued equity shares is HoldCo,
a Jersey registered company. WisdomTree Investments, Inc is the ultimate controlling party of HoldCo.
15.
Events Occurring After the Reporting Period
On February 24, 2022, Russia engaged in military actions in the sovereign territory of Ukraine. The Management
of the Company is closely monitoring developments that may impact financial markets including sanctions, actions
by governments and developments of the crisis. The Management of the Company will further assess the impact
on the fund’s portfolio operations and valuation and will take any potential actions needed, as facts and
circumstances are subject to change and may be specific to investment strategies and
jurisdictions.
There have been no other significant events that have occurred since the end of the reporting period up to
the date of signing the Financial Statements which would impact on the financial position of the Company
disclosed in the Statement of Financial Position as at 31 December 2021 or on the results and cash flows of
the Company for the year ended on that date.
- 36 -www.wisdomtree.eu
WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
16.
Non-GAAP and Non-Statutory Information
As a result of the mis-match in the accounting valuation of Metal Bullion and Metal Adjustment Contracts
(held to support the Currency-Hedged Metal Securities) and Currency-Hedged Metal Securities (as disclosed
in notes 7 and 8) the profits and losses and comprehensive income of the Company presented in the
Statement of Profit or Loss and Other Comprehensive Income reflect gains and losses which represent the
movement in the cumulative difference between the value of the Metal Bullion and Metal Adjustment
Contracts and the price of Currency-Hedged Metal Securities. The Statement of Changes in Equity also
reflects the fair value movements on the Metal Bullion and Metal Adjustment Contracts (held to support the
Currency-Hedged Metal Securities) and the Currency-Hedged Metal Securities.
These gains or losses on the difference between the value of the Metal Bullion and Metal Adjustment
Contracts (held to support the Currency-Hedged Metal Securities) and the price of Currency-Hedged Metal
Securities would be reversed on a subsequent redemption of the Currency-Hedged Metal Securities and
transfer of the corresponding Metal Bullion.
Furthermore, each class of Currency-Hedged Metal Security is issued under limited recourse arrangements
whereby the holders have recourse only to the relevant Metal Bullion and Metal Adjustment Contracts (held to
support the Currency-Hedged Metal Securities) and not to the Metal Bullion and Metal Adjustment Contracts of
any other class of Currency-Hedged Metal Security or to the Company. As a result the Company does not make
gains from trading in the underlying Metal Bullion and Metal Adjustment Contracts (held to support the Currency-
Hedged Metal Securities) and, from a commercial perspective (with the exception of the impact of applicable fees)
gains and losses in respect of Metal Bullion and Metal Adjustment Contracts (held to support the Currency-
Hedged Metal Securities) will always be offset by a corresponding loss or gain on the Currency-Hedged Metal
Securities and the Company does not retain any net gains or losses.
To reflect the commercial results, the Company has presented below a non-GAAP and non-Statutory
Statement of Profit or Loss and Other Comprehensive Income and Statement of Changes in Equity for the
period which reflect an adjustment from Market Value to Contractual Value (as set out in the Prospectus) of
Currency-Hedged Metal Securities, together with those gains or losses being transferred to a separate
reserve which is deemed non distributable.
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WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
16.
Non-GAAP and Non-Statutory Information (continued)
(a)
Non-GAAP and Non-Statutory Statement of Profit or Loss and Other Comprehensive Income
- 38 -www.wisdomtree.eu
WisdomTree Hedged Metal Securities Limited
Notes to the Financial Statements (Continued)
16.
Non-GAAP and Non-Statutory Information (continued)
- 39 -www.wisdomtree.eu
www.wisdomtree.eu