Commodities: Precious Metals Gold
Investor interest in safe-haven assets and beating imagined future inflation has made one of the funds in this segment—GLD—one of the largest ETFs in existence. On the other
“for those trading in retail quantities, IAU is the best bet” hand, the recent weakness in gold and a flight from its proxies has taken a huge bite out of the segment's asset base, cutting its combined AUM by more than half.
Institutional investors may find trading GLD far cheaper than trading the other funds. Its handle is 10x bigger than its largest competitor, so those paying a per-share price to transact will find it cheaper, and GLD's robust options market allows for liquidity extension and overlay strategies.
But for those trading in retail quantities, IAU is the best bet: It charges just 25 bps and sees excellent daily volume, albeit with slightly wider spreads. AGOL and SGOL also hold physical gold, but differentiate themselves by holding it in vaults in other countries (Singapore and Switzerland, respectively). While the vault location won't have an impact on the value of the gold, it may console those worried about having all their golden eggs in one basket. AGOL and SGOL charge 39 bps, so you'll pay up for diversifying your vault exposure.
The newest entrant in the segment, OUNZ, holds physical gold in a London vault. It allows investors to redeem their shares for gold coins in amounts as small as one troy ounce, without incurring a tax liability. Fees apply for this service, however, and they can be prohibitive for those redeeming less than several ounces.
The remaining funds in the segment don't hold physical gold.
GLDI, an exchange-traded note, tracks the returns of a hypothetical investment in GLD and 1-month covered-call options. It's pricier than its peers (65 bps), but the yield from its short-call options may make up for that. Three recent launches, GEUR, GYEN, and GGBP, go long gold (via either futures contracts or ETFs) while shorting a currency. Effectively, this strategy allows US investors to receive the same return as gold investors in other countries.
The other three funds in the segment—DGL, UBG and TBAR—hold or track gold futures contracts. DGL and UBG pick contracts to try to beat gold's persistent contango, while TBAR switches between gold futures and 3-month Treasury bills depending on gold's 200-day moving average. They are not the best choices if your core premise is getting access to gold, but based on the recent weakness in the space, that may not be a bad thing. These three funds cost more than the physical gold funds and have underperformed gold spot to date, so may not be the best choices if your core premise is getting access to gold. (Insight updated 10/23/17)
All Funds (12)
OUNZ $135.94 M 135942392.2646 Can trade shares for coins
SGOL $1.05 B 1053089700 Fair price, good liquidity
GLD $35.28 B 35277407800 Most liquid by a mile
IAU $9.57 B 9574674000 Cheapest retail option
UBG $3.8 M 3802180.3792 Cheap ETN, decent liquidity
DGL $155.73 M 155733610.58191 Expensive, distributes K-1
GLDI $52.42 M 52421487.163678 Little liquidity
GLDW $14.37 M 14372520 N/A
BAR $5.14 M 5144200 N/A
GEUR $12.75 M 12745997 Weak trader
GYEN $14.25 M 14246247.75 Weak trader
BAR-US -- N/A
ETF.com Grade as 10/19/17
Commodities: Precious Metals Gold
ETF.com Efficiency Insight
Most of the gold ETPs are highly efficient, especially in comparison with the broader commodities space.
The top spots are taken by the physically-held funds: SGOL, AGOL, IAU, and GLD.
“The top spots are taken by physically-held funds; IAU is the best” IAU is the best choice for most since it comes with the lowest expense ratio and tightest tracking. IAU charges just 25 bps and has a tight range of 12-month tracking differences that center around a median roughly equal to its fee. In comparison, SGOL and AGOL each charge 39 bps, while GLD charges 40 bps, and all three tend to lag spot gold by the amount of their fees. OUNZ, a new entrant, charges 40 bps.
Most of the remaining products charge more and tend to lag their underlying indexes by a greater amount. UBG charges a low 30 bp fee, but tends to lag its index by almost twice this amount. GLDI charges 65 bps, and while it's too new for detailed tracking analysis, it would be fair to assume that it should lag its underlying index by something close to its expense ratio. DGL charges 72 bps and generally lags by even more than that.
TBAR charges 100 bps when tracking gold and 50 bps when tracking short-term Treasuries, but either way it's an expensive way to gain exposure to both. The three newest issues, GYEN, GGBP, and GEUR, all charge 65 bps for their specialized gold and currency exposures.
Taxable investors should note the differences between the four product structures in this segment. TBAR, UBG, and GLDI are ETNs, and are taxed in the same simple manner as all equities. GYEN, GGBP, and GEUR are traditional open-ended funds. IAU, SGOL, AGOL and GLD are grantor trusts, which means they'll be taxed at the 28% collectibles rate if you hold them for more than a year, rather than the lower long-term capital gains rate. DGL is a commodity pool, and as such is taxed at a blended 60% long-term/40% short-term capital gains rate regardless of your holding period. Investors in DGL will receive a K-1 at year-end.
We see elevated closure risk for two of the three ETNs (UBG and GLDI) and the three AdvisorShares funds (GGBP, GEUR, GYEN). These funds have low assets and are likely unprofitable for their issuers to keep open. (Insight updated 10/23/17)
ETF.com Tradability Insight
The most liquid fund in this segment, by far, is GLD. In fact, it's one of the most liquid securities in the world. With daily volume in the hundreds of millions and razor-thin trading
“The most liquid fund in this segment, by far, is GLD.” spreads, none of the other funds even comes close.
That said, there are plenty of other options in this segment that should be liquid enough to suit most investors' needs. IAU sees excellent volume and reasonable spreads, while SGOL generally has a lower median volume but narrower average spreads. DGL also places near the top, with decent volume and tight spreads.
OUNZ and GLDI, while not perfectly tradable, see enough liquidity to be accessible to determined investors who like what they have to offer.
Institutional investors will likely be drawn to GLD thanks to its deep liquidity, large handle and robust options market. All of the choices in the segment should be easy and cheap to trade in size, but none of them will be able to match what GLD offers. (Insight updated 10/23/17)
ETF.com Fit Insight
The grantor trusts in the segment—AGOL, SGOL, OUNZ, IAU and GLD—each hold physical gold, so it follows that each tracks spot prices tightly. Since there is nothing separating
“AGOL and SGOL vault their gold in Singapore and Switzerland, respectively” these funds in Fit, it comes down to peace of mind and how much it means to you. GLD and OUNZ vault their gold in London, while AGOL and SGOL vault in Singapore and Switzerland, respectively. IAU uses a few different vaults around the world. OUNZ, notably, allows investors to redeem shares for gold coins for a fee. The returns of all of these funds should match that of gold spot nearly perfectly, net of fees, moving forward.
The ETNs in the segment, however, will vary greatly depending on what type of gold market we are experiencing. TBAR will likely outperform gold spot in times of falling prices, but the mechanism that triggers a switch from gold to T-bills and vice versa (the 200-day moving average) will prevent the fund from both fully capturing a move up in gold and fully insulating investors from its decline. The lag between the beginning of a decline or rise in gold and the move above or below the 200-day moving average is the culprit here, but in the recent period of gold weakness has been the standout performer.
GLDI will also perform differently from gold but for different reasons. In volatile markets, GLDI's nominal short-call position will likely get called away, driving a wedge between the performance of gold and the note. The extra income will help in times of sideways action in gold, but will do little to protect an investor from declines.
GYEN, GGBP, and GEUR take a highly original perspective on the gold market. Each fund takes a long position in gold while shorting a currency (the yen, pound sterling, or euro, respectively). The effect is to provide the same return, net of fees, as a gold investor who uses one of these currencies as their home currency. All three are traditional open-ended funds, and they gain exposure through a combination of derivatives, other ETFs, and a Cayman Islands holding company.
UBG takes the popular contango mitigation concept and applies it to gold, even though you can eliminate contango simply by owning spot gold. To date, the fund has not performed radically different from spot gold, although it has tended to lag it over all of our periods of study. DGL takes a similar approach but actually holds the various futures contracts its index provider deems to be least impacted by contango. Like UBG, it's therefore an imperfect proxy for spot prices and has tended to underperform them historically. (Insight updated 10/23/17)