With the variety of economic woes still troubling the markets, gold has continued to shine; investors still can't get enough of the yellow stuff. Functioning as both a safety net and inflation hedge, most financial advisors now recommend some allocation to the precious metal and investors have taken the advice to heart.


Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.


Several gold funds have seen their assets swell, as prices for the yellow metal have surged over the last few years. With demand continuing to increase from both developed and emerging market investors, the long term price appreciation for gold could almost be assured. Now could be the time to add metal to a longer timed portfolio.

The Big Boys on the Block
With nearly $65 billion in net assets, the SPDR Gold Shares (NYSE:GLD) is the 800-pound gorilla in the gold world and has become the go-to choice for bullion exposure, for many institutional and retail investors. For those wanting to gain from the additional leverage of mining firms, both the Market Vectors Gold Miners ETF (NYSE:GDX) and Market Vectors Junior Gold Miners ETF (NYSE:GDXJ), have nearly $11 billion in assets under management, split between them.

These three funds make up the bulk of investors' dollars in the space. While there is nothing inherently wrong with these ETFs, in fact they're pretty good, investors looking at the gold space tend to stop searching for opportunities at these funds. However, a discussion of gold funds doesn't need to stop with these three behemoths. For those looking for gold exposure, these alternative funds could be better portfolio fit. (For related reading on ETFs, see Using ETFs To Build A Cost-Effective Portfolio.)

Exploring the Alternatives
Currently, there are more than twenty ways for investors to get their gold fix, via exchange traded products, and new gold-based funds are still in the works. As the fund industry has continued to advance, providers have continued to create sophisticated new products. Innovation in the gold sector has not been lost. Investors have a number of options for achieving exposure to gold futures, mining stocks and complex strategies. Here are a few new options to consider:

The RBS Gold Trendpilot ETN (Nasdaq:TBAR) is an interesting fund choice for investors. The fund switches between exposure to gold or Treasury bills, depending on whether gold prices are above its 200-day moving average. While do-it-yourselfers could use the GLD and the SPDR Barclays Capital 1-3 Month T-Bill ETF (NYSE:BIL) to replicate the strategy, the set-it-and-forget-it notion is certainly appealing for many investors. Similarly, the UBS E-TRACS S&P 500 Gold Hedged Index ETN (Nasdaq:SPGH) tracks an index that equal weights exposure to the S&P 500 and gold prices. Overall, both funds have performed well, versus the S&P 500 and gold prices.

One of the major drawbacks to the physically backed funds is the issue of taxation. Counted as collectibles, long-term gains in these funds are taxed at 28%, instead of the usual capital gains rate of 15%. Exchange traded notes could circumvent this problem. Both the UBS E-TRACS CMCI Gold TR ETN (NYSE:UBG) and PowerShares DB Gold Double Long ETN (NYSE:DGP) can be used by investors as way to profit from gold futures pricing. The PowerShares fund also adds leverage to the mix and has skyrocketed, as gold prices have soared.

The majority of the bullion stored by the big gold ETFs is located in New York and London. With visions of Executive Order 6102 still dancing in their heads, some investors feel uneasy about this. The ETFS Physical Swiss Gold Shares (Nasdaq:SGOL) and ETFS Physical Asian Gold Shares (Nasdaq:AGOL) store their gold in Switzerland and Singapore, respectively. Despite their exotic locales, both ETFs actually charge less in expenses, than the popular GLD.

The Bottom Line
With investors' interest in gold continuing to rise, the ETF industry continues to pump-out new products for investing in the sector. For many investors, these new products could provide great alternatives to the standard bread and butter funds. The previous ETFs, along with the PowerShares DB Gold (NYSE:DGL) make interesting selections. (For additional reading, take a look at Two Golden Funds From Global X.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: United States Brent Oil Fund

    Learn more about the United States Brent Oil exchange-traded fund, the characteristics of the fund and the suitability and recommendations of it.
  2. Mutual Funds & ETFs

    ETF Analysis: ProShares Ultra Bloomberg Crude Oil

    Find out more about the ProShares Ultra Bloomberg Crude Oil ETF, the characteristics of UCO and the suitability and recommendations of UCO for investors.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Hong Kong

    Learn about the iShares MSCI Hong Kong fund, which invests in various equities of companies listed on the Hong Kong Stock Exchange.
  4. Mutual Funds & ETFs

    ETF Analysis: Vanguard Small-Cap Growth

    Take a close look at the Vanguard Small-Cap Growth ETF, which focuses on domestic small-cap equities with a fundamental growth strategy.
  5. Mutual Funds & ETFs

    ETF Analysis: First Trust Dorsey Wright Focus 5

    Take a closer look at the First Trust Dorsey Wright Focus 5 ETF, a unique and innovative fund of funds based on momentum and relative strength.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares National AMT-Free Muni Bond

    Take an in-depth look at the iShares National AMT-Free Municipal Bond ETF, a highly diverse and very popular muni bond fund.
  7. Mutual Funds & ETFs

    4 Mutual Funds to Consider If Interest Rates Rise

    Learn what mutual funds will perform best if interest rates rise. Interest rates can rise due to inflation or to an improving economy.
  8. Mutual Funds & ETFs

    Top 3 Switzerland ETFs

    Explore detailed analysis and information of the top three Swiss exchange-traded funds that offer exposure to the Swiss equities market.
  9. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  10. Mutual Funds & ETFs

    7 Best ETF Trading Strategies for Beginners

    Exchange-traded funds are ideal instruments for beginning traders and investors. Learn the seven best strategies for trading ETFs.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!