US Videos

Going for Gold with ETFs

Paul Justice, CFA

Paul Justice: Going for gold in your portfolio? Hi there I'm Paul Justice, director of North American ETF research for Morningstar, and today I'm here to talk about the differences between two competing gold products on the market today, iShares COMEX Gold Trust, ticker IAU, SPDR Gold Shares, GLD.

Most people are aware of the GLD fund; it is an synonymous with gold exposure in the ETF industry because it is the second-largest ETF on the market today. It is a fantastic way to get exposure to gold in your portfolio for only 40 basis points a year.

Now it only came out about two months before the iShares product, but has a substantial lead in assets under management. This is the first-mover advantage we often see in exchange-traded funds.

However, iShares has tried to garner its fair share of that market recently by announcing a price cut on its fund, dropping it to 25 basis points per year, which is incredibly cheap to get this gold exposure. It's a lot cheaper for sure than storing gold in your basement and getting guard dogs and security system to monitor any of the portfolio holdings.

The real differences between these funds really boil down to the fee and perhaps the market liquidity. I will give SPDR a lot of credit for having the depth of the market on their fund, but iShares runs a very effective capital markets desks, and I think that the fee cut could be very appealing to people who want gold in their portfolio as their commodity exposure.

Now, many investors are also not aware that these are 1933 Act funds, as opposed to the 40 Act funds many people hold in their portfolios for equity and bond exposure, and that means that you can actually do a tax-free swap between these by selling holdings in your SPDR gold and moving to the iShares product if you think this fee drop warrants that change. You won't incur the taxable gain at that point in time. So if you're considering the move, now might be a good time to act and you get an inexpensive way to gain that exposure.

For this and other ETF news, please check back again to Morningstar's ETF Solution Center or the ETFInvestor site. Thanks again. I'm Paul Justice for Morningstar.