Precious metals funds are a smart and effective way of adding diversification to an investment portfolio. However, you don’t want to buy just any fund in the universe that provides exposure to precious metals.
When choosing the best precious metals funds to buy, there are a few criteria to follow for narrowing your search:
- Use ETFs or ETNs: Exchange-traded funds and exchange-traded notes are generally preferred for investing in precious metals over mutual funds. This is because most precious metals mutual funds buy stocks of miners, which offers only indirect exposure to precious metals, whereas ETFs and ETNs can offer more direct exposure through indices and commodities markets.
- High Assets/Volume: It’s best to buy ETFs and ETNs that are widely traded, as opposed to those that are thinly traded. Higher assets and volume generally means less price volatility or spread between the buy and ask price.
- Low Expenses: When buying ETFs or ETNs that share similar or identical objectives, it doesn’t make sense to choose the one with the higher expense ratio. It’s almost always best to go with the lowest expenses.
With these qualities in mind, here are the seven of the best funds to add shine to your investment portfolio:
Precious Metals Funds to Add Shine to Your Investing: SPDR Gold Shares (GLD)
Expense Ratio: 0.4% or $40 for every $10,000 invested
If you want exposure to gold, the best way to do it is with SPDR Gold Shares (NYSEARCA:GLD).
GLD is the largest precious metals fund, as measured by assets, and it’s the most widely traded gold fund. This means greater liquidity and less deviation in the price spread, which is especially important if you’re frequently trading shares or dollar-cost averaging into the fund.
As with other precious metals funds, shareholders of GLD do not have a direct claim on physical gold but can track the price of gold bullion through the fund.
Precious Metals Funds to Add Shine to Your Investing: iShares Gold Trust (IAU)
Expense Ratio: 0.25%
Long-term investors looking for a low-cost alternative to GLD should take a close look at iShares Gold Trust (NYSEARCA:IAU).
When holding passively managed funds for the long run, lower expenses make a difference. This is the core philosophy and advantage of investing in index funds and ETFs: Their expenses are lower than actively managed funds, which gives them a slight performance advantage over time.
Expenses for IAU are 0.25%, compared to 0.40% for GLD. This is a difference of $15 per $10,000 invested. It pays to be cheap!
Precious Metals Funds to Add Shine to Your Investing: iShares Silver Trust (SLV)
Expense Ratio: 0.5%
If you want exposure to the day-to-day movement of the price of silver bullion, iShares Silver Trust (NYSEARCA:SLV) is a fine choice.
Although silver has lagged the broader precious metals category of funds, ETFs like SLV offer similar diversification qualities as gold and other precious metals — they have low correlation with the more conventional asset types, such as stocks and bonds.
SLV has over $5 billion in assets, which makes it a better choice than similar alternatives that are thinly traded.
Precious Metals Funds to Add Shine to Your Investing: ETFs Physical Platinum Shares (PPLT)
Expense Ratio: 0.6%
Investors looking for an ETF that tracks the performance of the price of platinum will want to consider buying shares of ETFs Physical Platinum Shares (NYSEARCA:PPLT).
Platinum may be considered the most precious of metals, but its lackluster performance in recent years places it among the worst performers in the category. However, this doesn’t mean that now is a bad time to invest in platinum.
The decision to buy precious metals is really one of supply and demand. If you think that the demand for platinum will outpace that of other precious metals during your holding period, the best ETF to buy for platinum is arguably PPLT.
Precious Metals Funds to Add Shine to Your Investing: iPath Bloomberg Aluminum Subindex Total Return (JJU)
Expense Ratio: 0.75%
If you want invest in an aluminum fund via an exchange-traded note (ETN) fund like iPath Bloomberg Aluminum Subindex Total Return (OTCMKTS:JJU) is a good way to do it.
Since JJU is an ETN, it is linked to an index that consists of aluminum futures, which means that shareholders of the fund won’t necessarily get the same price movement as the underlying asset. However, although generally riskier than ETFs, ETNs have proven to be good investment tools for investing in some of the lesser-traded assets like aluminum.
Over the past year, JJU has gained nearly 20%, which makes it one of the best performers in the precious metals category.
Precious Metals Funds to Add Shine to Your Investing: iPath Bloomberg Copper Subindex Total Return (JJC)
Expense Ratio: 0.75%
Copper is not quite as precious as other metals but serious gains can be had with the right fund. Investors looking for the best copper fund will like what they find in iPath Bloomberg Copper Subindex Total Return (OTCMKTS:JJC).
Although, copper’s performance has been tarnished in the recent short term, the 30% gain in 2017 for JJC shows that investors may keep copper funds in their tool kit. In 2009, JJC exploded with a 133% gain. However, there are plenty of negative years in between.
The bottom line for investors wanting exposure to copper is that prices will be volatile but JJC is an outstanding vehicle for buying the metal.
Precious Metals Funds to Add Shine to Your Investing: Powershares DB Precious Metals Fund (DBP)
Expense Ratio: 0.75%
If you want to want exposure to both gold and silver in one fund, Powershares DB Precious Metals (NYSEARCA:DBP) is the fund to do it.
DBP uses futures contracts and is based on the DBIQ Optimum Yield Precious Metals Index, which is 80% gold and 20% silver. This makes DBP more diversified than funds that focus on only one metal.
The exposure to futures contracts creates more volatility than precious metals ETFs that track the price of an underlying asset, but DBP is an outstanding means of getting low-cost exposure to gold and silver in one fund.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although he holds GLD for some client accounts. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.