by Tom Taulli | November 5, 2012 12:02 pm
Not that gold ever lacks attention, but gold exchange-traded funds have been wildly popular during the past three months.
According to BlackRock (NYSE:BLK) data, net inflows of gold-based ETFs have come to roughly $10 billion! And from August through November, the SPDR Gold Shares (NYSE:GLD) — the world’s largest gold-backed ETF — gained more than 6%, vs just about 3.5% for the S&P 500.
So have you missed the boat on gold? Perhaps not. Some compelling drivers remain, including the pending fiscal cliff and the Federal Reserve’s “unlimited” quantitative easing program, which could mean higher inflation across the world.
In light of these forces, many investors might see gold as a safe haven. Consider that even super-investors like David Einhorn have been moving aggressively into gold.
How can you capitalize on the rise of the little yellow metal? Here’s a look at five ETFs and mutual funds that can get you started:
As mentioned above, the SPDR Gold Shares (NYSE:GLD) has been a popular fund as of late.
That’s partially because of how easy it makes it to own gold.
Traditionally, an investor interested in gold would have to worry about finding a seller for physical bullion, then finding secure storage and buying insurance, and later finding a buyer. However, SPDR Gold Shares holds roughly physical gold in trust in London vaults — right now it has roughly $74 billion in gold — so investors simply can trade physically backed gold by purchasing shares of the ETF, which tracks the price of a tenth an ounce of gold.
GLD also has the advantage of a low-cost structure, translating into just 0.4% in expenses.
See also: 6 Dividend Stocks to Play Oil Prices
Another way to invest in gold is indirectly, via companies that actually mine the gold.
There are some risks. You’re investing in companies, not physical gold itself, so success depends on traditional metrics like profits. And many of these companies’ bottom lines aren’t just affected by the price of gold, but also operational costs, political risks and difficulties in finding new reserves. Still, there’s opportunity for funds that have a knock for finding solid operators.
This certainly has been the case with the First Eagle Gold (MUTF:SGGDX) fund, which has generated average annual returns of more than 16% for the past decade. Some of its top equity holdings include Agnico Eagle Mines (NYSE:AEM), Goldcorp (NYSE:GG) and Randgold Resources (NASDAQ:GOLD), though the fund also has roughly 18.5% of its assets in physical gold, meaning you are getting some direct exposure.
First Eagle Gold’s load-waived A shares carry a 1.2% expense ratio. SGGDX also yields roughly 1.3% in dividends.
If you are more interested in an ETF play on gold miners, a good choice is the Market Vectors Gold Miners ETF (NYSE:GDX).
The GDX tracks the NYSE Arca Gold Miners Index, which is focused on U.S.-listed companies with a minimum market-cap requirement of $100 million. Top holdings include Barrick Gold (NYSE:ABX), Newmont Mining (NYSE:NEM) and Yamana Gold (NYSE:AUY).
The GDX has posted a small gain of 1.13% year-to-date, but it has cruised as of late, rocketing 22% from August through November.
GDX manages roughly $10.25 billion in assets, so it’s able to afford a low expense ratio of 0.52%. It’s also very liquid at 13.5 million average trading volume.
Another way to get exposure to the mining side is through another Van Eck product tracking junior minors, which are mostly focused on exploration — a risky business, but one where the profits can be huge.
The Market Vectors Junior Gold Miners ETF (NYSE:GDXJ) has $3 billion in assets and tracks 80 stocks, many of which are traded in Canada and Australia. Some of the top holdings include B2Gold (Canada), Perseus Mining (Australia) and Medusa Mining (Australia).
GDXJ is fairly volatile, and actually has declined 3% year-to-date, but it too has enjoyed a strong third quarter, gaining nearly 26% from August to November. Expenses are just a touch higher than GDX at 0.54%.
The portfolio team at Van Eck International Investors Gold Fund (MUTF:INIVX) includes Joe Foster, a trained geologist. His background makes for a huge advantage when analyzing gold operators, often when trying to get a good estimate on their reserves.
During the past 10 years, Foster’s fund has posted an average return of nearly 20%. INIVX currently has about $1.4 billion under management; top holdings include Randgold Resources, New Gold (AMEX:NGD) and Osisko Mining.
The International Investors Gold Fund’s load-waived A shares charge 1.2% in expenses. The fund also yields 1.58% in dividends.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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