There's a fee war in gold ETFs, but nobody's buying.
Earlier this month, the $797 million ETFS Physical Swiss Gold Shares (SGOL), the fifth-largest gold ETF, cut its fees from 0.39% to 0.17%. That put SGOL just a hair cheaper than the $305 million GraniteShares Gold Trust (BAR), which, with an expense ratio of 0.1749%, had been the cheapest physical gold ETF on the market.
Rather than usher in a wave of new investor cash, SGOL has actually lost assets since the fee cut. Since Dec. 1, the fund has seen $18 million in net outflows. BAR, meanwhile, has registered no new inflows or outflows over the same period.
Usually a fee cut opens the floodgates to new cash, so why have gold investors this time kept their wallets closed? Have they finally lost their taste for physical gold ETFs?
Fee War Rages On
For starters, the SGOL fee cut is only the latest in a months-long price war among gold ETFs, one that many investors may be waiting out until it's completed.
When BAR launched last August, its 0.20% price tag made the ETF cheapest-in-class; the segment's existing behemoth, the SPDR Gold Trust (GLD), costs twice that much.
However, BAR was in turn undercut by two new launches this summer: the SPDR Gold MiniShares Trust (GLDM) and the Perth Mint Physical Gold ETF (AAAU), which both launched with an expense ratio of 0.18%.
A few months later, in October, BAR cut its expenses from 0.20% to 0.1749%, making it once again the cheapest gold ETF, until SGOL's move on Dec. 1 (read: "ETFs Change Indexes, Expense Ratios").
Yet BAR's fee reduction had limited market impact. Since the price cut, the fund has only brought in an additional $13 million in new net inflows.
That suggests that, rather than hopping from fund to fund, investors may just be waiting for the price war to settle down.
High Inflows For GLDM
There might be another explanation, however. While gold metal may be fungible, gold ETFs are not. So comparing all physical gold ETFs against one another, as I did above, is a bit unfair.
Interestingly, of all the low-cost alternatives to GLD, the one that has accrued the most inflows over the past six months is GLDM. Since June 13, GLDM has seen net inflows of $294 million, followed by BAR, which saw inflows of $158 million.
|Physical Gold ETFs|
|Ticker||Fund||AUM ($M)||Expense Ratio||Spread||YTD||1 Year||6-Mo Flows ($M)||YTD Flows ($M)|
|GLD||SPDR Gold Trust||29,900||0.40%||0.01%||-4.50%||-0.68%||-2,654||-2,925|
|IAU||iShares Gold Trust||10,650||0.25%||0.09%||-4.40%||-0.58%||-231||1,270|
|SGOL||ETFS Physical Swiss Gold Shares||801||0.39%||0.02%||-4.50%||-0.68%||-182||-205|
|GLDM||SPDR Gold MiniShares Trust||309||0.18%||0.08%||--||--||294||310|
|BAR||GraniteShares Gold Trust||300||0.17%||0.02%||-4.40%||-0.48%||158||294|
|OUNZ||VanEck Merk Gold||134||0.40%||0.08%||-4.55%||-0.77%||-4||7|
|AAAU||Perth Mint Physical Gold ETF||71||0.18%||0.08%||--||--||69||69|
Sources: ETF.com, FactSet; data as of Dec. 12, 2018
Why are investors opting for GLDM, specifically, over cheaper options? It likely has to do with GLDM's structure. GLDM is essentially a modified version of GLD; meaning, vaulting and custodying is all the same, but whereas each share of GLD holds 1/10th an ounce of gold metal, each share of GLDM holds 1/100th of an ounce.
That makes GLDM's gold-per-share equivalent to that of the iShares Gold Trust (IAU), which for years has been the hound nipping at GLD's heels and siphoning away its market share. IAU's smaller gold-per-share ratio has appealed especially to retail investors, who generally seek to place smaller trades.
However, now they can also use GLDM, which is 0.06% cheaper than IAU. And that's a price difference that seems to matter. Notably, even as GLDM has taken in $294 million in net inflows over the past six months, the more expensive IAU has lost $230 million. Some of that is likely due to investors shifting to the cheaper GLDM.
Siphoning GLD's Market Share
Gold traders placing larger or more frequent orders likely won't be swapping en masse from GLD, which remains one of the most liquid ETFs on the market. It trades with pennywide spreads and minimal premiums and discounts.
But BAR—which has the same gold-per-share ratio as GLD at half the cost—has been able to lure away at least a few traders, given its inflows of $158 million over the past six months.
And that's why SGOL's price drop is so intriguing. SGOL too has a gold-per-share ratio of 1/10—and now it's also the cheapest of the three.
At least, it is on paper. BAR's 0.1749% expense ratio is often rounded down by most data services that only report expense ratios up to two decimal places. (For example, our own fund report for BAR shows its fees at 0.17%, not 0.1749%.)
So will enough investors actually realize that the two funds are priced differently, and SGOL is ever-so-slightly cheaper? We will just have to wait and see.
But SGOL does have one additional advantage in its favor over BAR: It's starting with a larger user base. SGOL has more than 2.5 times the assets under management as BAR. Maybe that will matter. Maybe it won't. Either way, I'll be grabbing the popcorn.
Contact Lara Crigger at [email protected]