Following some forgettable performances last year, commodities are rebounding in 2019 and precious metals funds are among the leaders. One precious metals ETF that provides basket exposure to multiple precious metals, including gold and silver, is higher by nearly 6% year-to-date.
Depending on an investor’s objectives and risk tolerances commodities can represent up to 5% of well-balanced portfolios. Precious metals funds, be they ETFs or mutual funds, make accessing the asset class more efficient and, in many cases, less expensive.
Additional benefits of precious metals funds, such as the SPDR Gold Shares (NYSEARCA:GLD) and the iShares Silver Trust (NYSEARCA:SLV), include the ability to fight inflation and take advantage of a weaker dollar. A drawback to investing in precious funds where the underlying asset is the metal itself is the fact that these funds do not pay dividends or coupon payments, meaning investors are entirely dependent on capital appreciation.
For investors considering precious metals funds, here are some intriguing ideas to consider.
Invesco DB Precious Metals Fund (DBP)
Expense ratio: 0.78% per year, or $78 on a $10,000 investment.
The Invesco DB Precious Metals Fund (NYSEARCA:DBP) is an index-based precious metals fund, meaning it does not directly hold positions in gold, silver or other metals. Rather, this 12-year old fund follows the DBIQ Optimum Yield Precious Metals Index Excess Return Index.
DBP “is designed for investors who want a cost-effective and convenient way to invest in commodity futures. The Index is a rules-based index composed of futures contracts on two of the most important precious metals — gold and silver,” according to Invesco.
Gold and silver are the only metals represented in DBP, which makes sense for a futures-based strategy because those are the two most heavily traded precious metals futures. The rub with DBP and other futures-based funds is that these strategies usually carry high expense ratios and that is the case with this precious metals fund. DBP is up almost 4% this year.
Aberdeen Standard Physical Precious Metal Basket Shares (GLTR)
Expense ratio: 0.60% per year, or $60 on a $10,000 investment.
The Aberdeen Standard Physical Precious Metal Basket Shares (NYSEARCA:GLTR) is the ideal precious metals fund for the investor that wants in on this asset but cannot decide on a single metal to invest in.
GLTR solves that conundrum by featuring physical exposure to gold, silver, palladium and platinum. At the end of last year, GLTR allocated over 80% of its weight to gold and silver, but its exposure to palladium and platinum make for a more diverse option than the aforementioned DBP.
GLTR has been getting a tailwind from high-flying palladium over the past 12 months, but at times when gold is the only precious metal trading higher, investors should expect this precious metals fund to lag dedicated gold funds.
SPDR Long Dollar Gold Trust (GLDW)
Expense ratio: 0.50% per year, or $50 on a $10,000 investment.
One of the biggest risks to precious metals funds and investors owning those funds is the dollar. Precious metals, like all commodities, are denominated in dollars, meaning that when the dollar is strong, commodities typically falter.
The SPDR Long Dollar Gold Trust (NYSEARCA:GLDW) is one of the first ETFs to address that scenario. GLDW follows the Solactive GLD Long USD Gold Index. That benchmark “is designed to represent the daily performance of a long position in physical gold and a short position in a basket comprised of each of the Reference Currencies,” according to State Street.
GLDW’s reference currencies are the currencies are the euro, Japanese yen, British pound sterling, Canadian dollar, Swedish krona and Swiss franc.
This precious metals fund is doing its job. Over the past year, the dollar has been mostly stronger, sending the aforementioned GLD lower by almost 2%, but GLDW is higher 10.80% over that period.
GraniteShares Gold Trust (BAR)
Expense ratio: 0.1749% per year, or $17.49 on a $10,000 investment.
As the funds highlighted above confirm, precious metals funds carry higher expense ratios than many equity or fixed income ETFs. However, the battle for lower fees is making its way to the commodities space and the GraniteShares Gold Trust (NYSEARCA:BAR) is leading that charge.
Since debuting in August, BAR has lowered its expense ratio multiple times in an effort to become the least expensive gold ETF on the market, an attractive trait for buy-and-hold investors. With an expense ratio of 0.1749% per year, BAR is cheaper than rivals such as GLD and the iShares Gold Trust (NYSEARCA:IAU).
BAR’s efforts to lure cost-conscious investors are proving successful. The precious metals fund has $467.64 million in assets under management, $132.50 million of which have flowed into the fund this year.
VanEck Merk Gold Trust (OUNZ)
Expense ratio: 0.40% per year, or $40 on a $10,000 investment.
Critics of traditional gold ETFs and precious metals funds assert that these funds are really just paper investments because when you depart the funds, you receive cash as you would with any other investment. The VanEck Merk Gold Trust (NYSEARCA:OUNZ) takes a different approach.
OUNZ “provides investors with a convenient and cost-efficient way to buy and hold gold through an exchange traded product with the option to take physical delivery of gold,” according to VanEck.
OUNZ is not a gimmick. The fund actually has delivered physical gold to investors in its almost five years on the market.
Todd Shriber owns shares of IAU.