ETF Of The Week: 'Mini Gold' Matters

As recession fears swell and investors seek to mitigate their downside risk, flows are pouring into physical gold ETFs.

Year to date, the world's largest gold fund, the $44 billion SPDR Gold Trust (GLD), has brought in $6.4 billion in new net investment assets, while the second largest, the $16 billion iShares Gold trust (IAU), has brought in just under $3.0 billion.

But investment dollars are pouring into the smaller physical gold ETFs as well. Notably, the SPDR Gold MiniShares Trust (GLDM) crossed the $1 billion mark just a few weeks ago, on Sept. 18, fifteen months after launching.

The fund, our ETF of the Week, has taken in small, steady flows, and is now up to $1.1 billion in assets under management:

Source: ETF.com; data as of Oct. 3, 2019

Gold-Per-Share, Explained

With an expense ratio of 0.18%, GLDM is cheap, but it's not the cheapest gold fund on the market. That honor goes to the Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL), which has an expense ratio of 0.17%, and is just fractions of a basis point cheaper than the GraniteShares Gold Trust (BAR) (read: "Gold ETF Fee War Gets Complicated").

But price alone isn't why investors buy GLDM. Largely, they buy it as an alternative to GLD, as the two funds are from the same sponsor (the World Gold Council) and function essentially as clones of one another, save for one big difference: Whereas each share of GLD represents 1/10th of an ounce of gold metal, each share of GLDM represents 1/100th of an ounce (or the same as IAU).

A smaller gold-per-share ratio doesn't offer much advantage to institutional investors, who don't mind buying in large lots. But it can be the make-or-break for retail investors, who often need the flexibility of placing smaller, cheaper trades. A smaller gold-per-share ratio brings down the ETF's share price, making it easier for investors with fewer dollars to invest to meaningfully allocate to gold, especially since you cannot buy fractional shares of ETFs

Smaller Gold-Per-Share Appeals To Retail Investors

It's the same fact that has made IAU such a strong competitor to GLD: With a 1:100 gold-per-share ratio, IAU has managed to amass $16 billion of investment assets, and even now, it's still experiencing strong inflows (read: "ETF Investors Rush To Precious Metals").

That GLDM and IAU have both seen strong inflows this year shows that there's room on the market for more than one low gold-per-share ETF, as long as gold continues its upward climb.

Year to date, the gold price has risen 16.5%, to $1,489.90/ounce.

Contact Lara Crigger at [email protected].