Market Overview

A New Low-Fee Gold ETF Is Coming

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A New Low-Fee Gold ETF Is Coming
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Home to $36.58 billion in assets under management as of May 3, the SPDR Gold Shares (NYSE: GLD) is the world's largest exchange traded fund backed by physical holdings of gold.

While GLD remains the go-to choice among gold ETFs for many professional investors due to robust liquidity and tight spreads, it has been losing market share to lower costs rivals, such as the iShares Gold Trust (NYSE: IAU).

The World Gold Council, which sponsors GLD, is looking to make its presence felt in the low-fee gold ETF tussle with a cheaper product of its own.

“The World Gold Council, owner of the world’s largest gold-backed exchange traded fund, is launching a new fund with a cut-price management fee to fend off rivals with lower charges, Reuters reported, citing an unidentified source close to the issue.

What Happened

GLD debuted in November 2004 as the world's first ETF backed by gold, giving it a significant advantage over later-arriving rivals. The fund even spent a brief period of time as the world's largest ETF of any type. Today, GLD is the 18th-largest U.S.-listed ETF, but by far the largest commodities ETF.

Investors have also widely preferred GLD to gold miners equity ETFs, as GLD is more than six times larger than the biggest gold miners fund.

Why It's Important

The WGC's move to compete on fees is notable because GLD charges 0.4 percent per year, or $40 on a $10,000 investment. That is 15 basis points higher than the annual fee on IAU. IAU debuted two months after GLD and has $12.21 billion in assets under management today.

The GraniteShares Gold Trust (NYSE: BAR) debuted in August and charges 0.2 percent per year. The ETF has $14.44 million in assets.

It is expected that the new WGC fund will charge in the area of 0.25 percent annually, according to Reuters.

What's Next

Fees matter across the ETF landscape and that is true with gold ETFs as well. In recent years, IAU has been growing at a far more rapid rate than GLD due in large part to the former's significantly lower fee.

“The source said the council’s two funds were designed to appeal to different audiences, with the new product targeted at investors looking to buy and hold gold who want a low management fee, and GLD aimed at financial investors who use its scale and liquidity to trade in and out of positions cheaply,” Reuters reported.

Disclosure: The author owns shares of IAU.

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