Gold ETF Flows Shift Course

July 26, 2018

Meanwhile, GDX, which focuses on larger gold miners, has also experienced a string of inflows, starting at the beginning of June. Since April 1, GDX has taken in $344 million. That figure would have been larger if not for a day of significant outflows on July 10, in which investors pulled $208 million from the fund:

 

Sources: ETF.com, FactSet; data as of July 24, 2018

 

Year-to-date, GDX has taken in $1.4 billion in new net investment assets, while GDXJ has taken in $614 million.

Investors may be turning to gold miners for performance reasons. Gold miner stocks blend the characteristics of gold and equities, and can often act like a leveraged play on both.

Over the past three months, GDX is down 4.8%, while GDXJ is down 3.4%. Neither return is great, but both funds are still outperforming the big two physical gold ETFs by several percentage points.

 

Source: StockCharts.com. Data as of July 25, 2018.

 

Geared Gold Funds Trading High

Leveraged gold miner ETFs have also seen marked increases in investor interest. Year-to-date, the Direxion Daily Gold Miners Index Bull 3x Shares (NUGT), which provides 3x leveraged exposure to the same index as GDX, has pulled in $378 million in net inflows.

Meanwhile, the Direxion Daily Junior Gold Miners Index Bull 3X Shares (JNUG), which provides 3x leveraged exposure to the same index as GDXJ, has brought in $213 million.

Flows into leveraged ETFs tend to be more volatile, considering that these trading instruments track multiples of the daily returns of their underlying index and are therefore not suitable for long-term investment.

To that point, on July 17, when the gold price dropped 1% over the course of a few hours, NUGT traded more than 80 million shares in one day, worth more than $1.8 billion. That was more than 10 times its average daily turnover over the past year.

Newcomer Slowly Gaining Ground

Other physical gold ETFs haven't seen much in the way of inflows over the past few months. That includes the GraniteShares Gold Trust (BAR), which experienced an influx of $250 million back in June, but has seen few inflows since (read: "Fee Wars Shake Up Gold ETFs").

In part, that could be due to the launch of the SPDR Gold MiniShares Trust (GLDM) on June 25. The ETF, a cheaper version of GLD that holds roughly the same amount of gold per share as IAU, carries an expense ratio of 0.18%, meaning that GLDM undercuts BAR, the former cheapest-in-class, by 0.02%.

Fees can make or break a gold ETF, because aside from cost, little differentiates bullion-backed ETFs. Many of the distinguishing features of each fund—where its gold is vaulted; how much metal one share represents; how each bar is tracked and accounted for—wind up being relatively minor details to most investors, who are more concerned with cost and liquidity.

Since its inception, GLDM has pulled in $65 million in new net inflows. BAR, on the other hand, has pulled in only $6.3 million.

Contact Lara Crigger at [email protected]

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