Muted Reaction To Cheap Gold ETFs

December 14, 2018

London (Dec 14)  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.


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