Gold ETF Fee War Gets Complicated

April 26, 2019

[This article appears in our May issue of ETF Report.]

In the ETF fee wars, the tickers may differ, but the story stays the same: Investors flock toward whichever fund on the market is cheapest, even if that ETF undercuts by a basis point or less—except, it seems, in the gold market.

Year-to-date, physical gold ETFs have brought in more than $1 billion in new net investment assets. But these flows have bucked precedent, in that the cheapest fund on the market isn’t the one raking in cash.

That’s because there’s more to the story in gold than just a headline sticker price. Nuance matters, and more expensive funds actually possess a subtle structural detail that, for buy-and-hold investors, can make all the difference.

When Cheap Isn’t Enough
With an expense ratio of 0.17%, the $904 million Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL) is technically the cheapest physical gold ETF on the market. We say “technically,” because the $467 million GraniteShares Gold Trust (BAR) has an expense ratio of 0.1749%, which rounds down in most data services—including FactSet, which powers ETF.com’s fund reports—as 0.17%.

Last December, SGOL, the third-largest physical gold ETF, slashed its fees from 0.39% to 0.17%, an aggressive move that put the fund just a hair cheaper than BAR, which, up to that point, had been the cheapest gold ETF on the market.

Rather than usher in a wave of new investor cash, however, SGOL has limped along since its fee cut, bringing in just $45 million in new net assets since Dec. 1, 2018. Meanwhile, BAR has brought in $144 million over the same period.

2018: A Year Of Price Drops
SGOL’s fee drop was only the latest salvo in a months-long price war among gold ETFs. When BAR launched in August 2017, its expense ratio of 0.20%—half that of the segment’s existing leader, the $33 billion SPDR Gold Trust (GLD)—immediately made BAR the cheapest-in-class.

However, BAR was itself undercut last summer by two new ETFs: the $654 million SPDR Gold MiniShares Trust (GLDM) and the $109 million Perth Mint Physical Gold ETF (AAAU). Both funds launched with an expense ratio of 0.18%.

A few months later, BAR cut its expenses from 0.20% to 0.1749%, making it once again the cheapest gold ETF until SGOL’s move last December.

All this horse-jockeying makes it easy to forget that, once upon a time, the second-largest fund in the space, the $12.7 billion iShares Gold Trust (IAU), also launched as a low-cost competitor. However, with its expense ratio of 0.25%, IAU now seems downright pricey compared with the current generation of gold ETFs.

GLDM: Breakout Hit
That said, flows into BAR are being swamped by IAU and GLDM, two more expensive competitors (see Figure 1).

 

 

Year-to-date, IAU has brought in $849 million in new net inflows, while GLDM has brought in $248 million.

The numbers look even better over a one-year period: IAU has seen its assets rise by $1.3 billion, while GLDM has risen by $603 million. What’s more, in the nine months since its launch, GLDM has never seen a day of outflows.

Compare that with AAAU, which costs the same as GLDM, and which launched around the same time; it’s only seen about $17 million in new net inflows year-to-date.

Why would investors gravitate specifically to IAU and GLDM? What is it about these two funds that make them so attractive to investors looking to allocate to gold?

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