Gold remains among investors' favorites owing to several of its virtues – it offers a hedge against inflation, has little correlation with the stock market, and offers growth potential even during uncertain economic conditions. Beyond equities, bonds, real estate and currency, gold-linked investments act as an alternative asset to diversify an investment portfolio. (See also, Top 5 Gold ETFs for 2018.)
Gold-based exchange traded funds (ETFs), exchange traded notes (ETNs) and trust fund shares offer a convenient medium to take short term trading positions or make long term investments in the precious yellow metal commodity. They all work on a similar principle – hold physical gold or gold-linked financial instruments and issue shares to common investors whose value changes depending on the valuation of the holdings. Owing to their high liquidity, low expenses and ease of trading, such gold-based products have gained popularity with many leading fund houses and asset management companies (AMC) launching different versions of the products.
However, each distinct gold product comes with its own cost which varies from 0.18% to 1.35%. Careful consideration should be given to the expense ratio, as it impacts the net return that an investor can realize. The expense ratio is the annual fee that all funds or ETFs charge their shareholders, and includes management fees, administrative fees, operating costs, and all other asset-based costs incurred by the fund. (See also, Fee War Makes Its Way to Gold ETFs.)
Below is the list of gold-based ETFs which rank among the lowest in terms of the expense ratio charged to the investors.
Issued by State Street SPDR, the GLDM gold ETF offers investors one of the lowest available expense ratios for a U.S.-listed physically gold-backed ETF. It is categorized as a Long-Short ETF, which means that the fund at times may take both long and short positions in the underlying asset (gold). Started recently in June 2018, the ETF comes with a low expense ratio of 0.18%. As of writing, it has assets under management (AUM) of around $135 million, and holds around 3.5 tonnes of gold in its trust.
Launched by the New York City-based GraniteShares ETF company, BAR was launched in August 2017, and has an expense ratio of 0.20%. The ETF is backed by physical gold which is securely held at the Londond-based vault operated by custodian ICBC Standard Bank PLC. BAR represents fractional interest in physical gold bullion that is stored in the vaults. It has around $283 million AUM and holds around 7.36 tonnes of physical gold.
One of the oldest gold-based trust that started in 2005, the IAU shares represent a fraction (1/100th) of an ounce of gold. With an expense ratio of 0.25%, the IAU Gold Trust commands a significant market share among the gold-backed funds and ETFs. It has net assets topping $10.25 billion as of September 2018, and holds more than 266 tonnes of physical gold in its trust.
Another offering from iShares, the relatively new ETF launched in June 2018 has a net expense ratio of 0.25%. It has AUM of a little over $4.6 million, and seeks to provide exposure, on a total return basis, to the price performance of gold. It attempts to do so by investing in a combination of (i) exchange-traded gold futures contracts and other exchange-traded or over-the-counter (OTC) derivatives like forward contracts, futures, options and swaps that correlate to the investment returns of physical gold, and (ii) exchange-traded products (ETPs) backed by or linked to physical gold, which may include the iShares Gold Trust (IAU)
Issued by UBS, the UBG ETN was launched in April 2008 and charges an expense ratio of 0.30%. It is designed to track the performance of the UBS Bloomberg CMCI Gold Total Return Index, which measures the collateralized returns from a basket of gold futures contracts up to five constant maturities that range from three months up to three years. It has around $3.3 million AUM.
Launched by Aberdeen Standard Investments in September 2009, SGOL attempts to reflect the performance of the price of gold bullion. With AUM of more than $781 million, its shares are physically backed with allocated metal at the Zurich, Switzerland-based vault. The product shares are priced off the London Bullion Market Association’s specifications for Good Delivery, which is an internationally recognized and transparent benchmark for pricing physical gold. It has a net expense ratio of 0.39%.
Past 12-month's Performance of Low-Cost Gold ETF
Graph Courtesy: Yahoo! Finance