Fee War Among Gold ETFs Intensifies as Investors Seek Safety. Here’s the Cheapest One.
Gold ingots.
Andrey Rudakov/Bloomberg
Investors have poured billions of dollars into gold funds this year, and asset managers are taking notice. Last week, State Street reduced the management fee of its $4.6 billion SPDR Gold MiniShares exchange-traded fund from 0.18% to 0.10%, a new low for the group.
Demand for gold as a store of value is climbing, as investors confront soaring inflation and the economic uncertainties caused by Russia’s invasion of Ukraine. Gold spot prices have rallied 6.3% year to date to $1,945.30 per ounce on Wednesday, the highest level since August 2020, when they were over $2,000.
Meanwhile, the stock market has suffered a dismal start to the year, with the S&P 500 index falling 8%. Besides gold, investors are also moving money into other havens such as Treasury bonds. The yield of the two-year Treasury note fell from 1.607% on Feb. 23 to 1.349% on Tuesday. (Bond yields and prices move in the opposite direction.)
To take advantage of gold’s rise, investors don’t need to store bullion in their basement. The easiest way to invest is through the ETFs backed by physical gold stored in bank vaults. Since there is no essential difference between different gold ETFs, fees have become a key factor.
The $64 billion SPDR Gold Shares (ticker: GLD) is the biggest and oldest among the group, but it’s not the cheapest. The fund charges an expense ratio of 0.40%, or about $40 a year for every $10,000 invested.
Investors might see a better return with other, cheaper options: The $635 million VanEck Merk Gold Trust (OUNZ) charges an annual fee of 0.30%; the $31 billion iShares Gold Trust (IAU), 0.25%; the $702 million Goldman Sachs Physical Gold ETF (AAAU), 0.18%; the $988 million GraniteShares Gold Trust (BAR), 0.175%; and the $2.7 billion Aberdeen Standard Physical Gold Shares ETF (SGOL), 0.17%.
More recently, BlackRock launched the iShares Gold Trust Micro ETF (IAUM) in June 2021 with an expense ratio of 0.15%. The fund has already attracted $1.3 billion in assets less than a year after its debut.
The fee war was further intensified when State Street, the sponsor behind SPDR Gold Shares, slashed the costs of its sister fund, the SPDR Gold MiniShares ETF (GLDM). The fund was launched in 2018 with a fee of 0.18%—already one of the lowest among peers. With its new price tag of 0.10%, it is now effectively the cheapest.
The fund has also increased the amount of gold exposure per share—from 1/100th of an ounce to 1/50th—by merging two shares into one. Its sister fund, the SPDR Gold Shares, on the other hand, is pegged to the equivalent of a 10th of an ounce of gold per share.
It’s worth noting that the VanEck Merk Gold Trust offers investors the option to redeem their ETF shares for physical delivery of gold bars. Most other gold funds don’t allow physical delivery. That means investors need to sell their shares on the secondary market in exchange for cash.
Investors could also put their bets on gold mining stocks, which typically move in tandem with the price of the bullion, despite higher volatilities. Year to date, the $276 million Sprott Gold Miners ETF (SDGM) has gained 13.7% as of Tuesday’s close, and the $14.4 billion VanEck Gold Miners ETF (GDX) is up by 12%.
Write to Evie Liu at [email protected]
