[This story originally appeared on HardAssetsInvestor.com and is republished here with permission.]
David Mazza is a principal of State Street Global Advisors—issuer of SPDR Gold Shares (NYSE Arca: GLD), which has more than $73 billion in AUM—and is also the head of exchange-traded fund investment strategy for the Americas within the SPDR ETF Strategy and Consulting Group.
Mazza develops market outlooks and investment themes and also authors white papers on various market and ETF-related topics. HAI Managing Editor Drew Voros recently spoke with Mazza about GLD’s success, the gold market in general and why GLD is better for a portfolio than gold bullion and coins.
Hard Assets Investor: How would you characterize fund flows this year for GLD?
David Mazza: We’re particularly happy with how robust the flows have been into GLD this year. We’re close to $5.6 billion in net new cash flows as of Oct. 24. That’s very successful from an inflows perspective; very successful in aggregate of other ETFs and then also relative to our product line.
HAI: Why are investors in GLD and other physically backed gold ETFs so “sticky” to those investments?
Mazza: GLD and the success that it’s had over the past few years has brought renewed interest into gold being a portion of an investor’s portfolio because of the evidence that shows it can add diversification, almost whether or not the price of gold is going up and down. That’s because the drivers in the fundamentals of gold tend to be different than the drivers in fundamentals of traditional components of diversified portfolios such as equities or fixed income.
More investors understand the role that gold should play in their portfolio. That’s helped, as you alluded earlier, to make gold a sticky asset from that perspective.
HAI: Do you have any kind of breakdown on what percentage of investors are institutional or retail in GLD?
Mazza: Using 13-F filings, we were able to determine that, through the end of June, a little under 50 percent of GLD was owned by what are considered institutional investors.
HAI: The rest are retail?
Mazza: The rest would be either retail investors or those investors who are considered more intermediary, who do not meet the AUM requirements, which would require them to file a 13-F form.
HAI: Is gold a better hedge against inflation than, say, inflation-protection bonds like TIPS?
Mazza: There are multiple assets that offer the potential to hedge against inflation through different environments. I would include inflation-linked bonds, and TIPS serve that purpose. I would include in that commodities, and particularly precious metals. I would also include commodity-related equities, and I would include REITs in that bucket. So those are your four real-return assets that have the ability to fight against increases in CPI [the Consumer Price Index].
This is an interesting case that we’re in right now. Inflation itself, according to the way it’s calculated, is somewhat benign. But inflation expectations have begun to increase. The idea that inflation will be higher has increased as well.
With an asset like gold, its price may begin to actually pick up those expectations more than some of the other assets, which really require actual inflation to be in place. I would recommend that investors begin to think about inflation-hedging from a broad-portfolio perspective, and really build out the assets that they can use at their disposal to do so. Luckily, ETFs are available to be able to do that in many cases.
HAI: Why should a retail investor invest in GLD rather than buying bullion or coins?
Mazza: GLD offers the ability to have full transparency, liquidity and tradability on an exchange, which can be quite fruitful. Investors can achieve that with bullion and coins, but when we think about being able to integrate your entire investment portfolio, having GLD be a securitized product that trades on an exchange can be quite beneficial to a retail investor.
Trial by fire is one way to discover why ETF transparency matters.
Most people now realize leveraged ETFs can hurt you, but how, then, to use them?
What would a shift out of a mutual fund and into an ETF look like up close?
China A-shares in a broad emerging market fund may be the right idea at a terrible time.