Eyeing a ‘Safe-Haven’ Gold Fund

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

The gold bug that has gripped investors of late seems to be showing no signs of slowing down. Financial investors and analysts are reacting to uncertainty regarding the rise of inflation in the United States, as well as uncertainty abroad. To address this ongoing trend, I’d like to give gold aficionados a glimpse of the iShares Gold Trust ETF (IAU).

Some observers might think of IAU as a major rival of the SPDR Gold Shares (GLD) fund that I recently featured. While it is true the two funds are competitors, there are some differences between them that offer two distinct choices for gold investments.

While GLD is focused on holding gold bullion, IAU, established in 2005, seeks to correspond generally to the day-to-day movement of the price of gold bullion. The objective of IAU is to reflect, at any given time, the price of gold owned by the trust, less its expenses and liabilities. IAU shares are designed to approximate an investment in gold in a simple and cost-effective manner.

On Friday, April 1, the push for gold hit a three-month high, leading to IAU running out of tradable shares, according to Morningstar. Thankfully, the price of the fund was not affected and was easily remedied by Monday morning. Since IAU is technically an exchange-traded commodity, it holds physical gold and is therefore subject to different rules than a normal gold fund. However, the temporary shortage of tradable IAU shares shows just how strong the rush to precious metals is right now.

Asset-wise, IAU is smaller than GLD, with only $7.4 billion in assets under management, compared to $32 billion in assets for GLD. But IAU still is the second-largest gold fund out there. Also, IAU offers a better expense ratio than its larger competitor, 0.25% compared to 0.40% for GLD. In terms of performance, IAU is up 13% year to date, experiencing the same dramatic rise as many other gold funds and stocks during the first quarter of 2016. The fund does not pay dividends and is 100% invested in gold, so there are no top holdings to report.

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View the current price, volume, performance and top 10 holdings of IAU at ETFU.com.

A market trend that can empty the sellable shares of one of the biggest gold funds I know of is strong indeed, and that situation could be dangerous. That being said, if you feel that gold is a worthwhile step towards fulfilling your investing goals, then you may wish to research and consider the iShares Gold Trust (IAU).

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.



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