View now: full list of Australian ASX ETFs.
Why Would Anyone Invest In Gold?
Gold is seen as a “safe haven” for your money. Investors view it as a relatively stable asset that retains its value even when markets or real estate are falling. Gold tends to receive a lot more interest when markets are falling or there are fears of a recession.
There are many different ways to invest in gold, the most difficult of which would be to actually buy physical gold from a mint and keep it under your bed – or probably in a safe – for a rainy day. Unfortunately, holding costs and logistics can make this strategy difficult, and there are easier options.
Key Differences: GOLD v MNRS
The ETFS Physical Gold ETF (ASX: GOLD) is designed to make life easy, allowing investors to gain exposure to physical gold via an ETF which can be bought and sold like shares. The GOLD ETF by ETF Securities is backed by physical gold held by HSBC Bank Plc and only metal which conforms with the London Bullion Market Association’s rules are accepted.
The GOLD ETF gives you direct exposure to the underlying asset (gold bars) and returns depend entirely on the price of gold. Over the last 10 years, the GOLD ETF has returned 6.17% per year and 7.62% over the last three years.
The BetaShares Global Gold Miners ETF (ASX: MNRS) takes a different approach to getting exposure to the performance of gold prices. MNRS invests in shares of the largest gold miners around the world. This is more indirect exposure to gold, and performance is affected by the price of gold, the performance of the companies and investor sentiment towards the shares.
The MNRS ETF hold shares in companies based around the world, but a large majority are in Canada, South Africa and the US. The MNRS ETF is also currency-hedged, meaning all foreign currency exposure is hedged to the Australian dollar.
Over the last three years, the fund has returned 4.64% per year, so it has underperformed the GOLD ETF, however, there is potential for huge returns, with MNRS returning 69.89% over the last 12 months.
The Fees & Costs GOLD & MNRS
The GOLD ETF has a management fee of 0.4% per year, while the MNRS ETF has a 0.57% per year management fee which is likely higher because of currency hedging.
The physical GOLD ETF would probably be considered less risky because it is a much larger ETF and is backed by physical gold. The gold miner MNRS ETF, on the other hand, is much more volatile as there are several different factors influencing the price.
To me, it would suggest that GOLD would be a better choice for a stable investment or a hedge for an existing portfolio, while the MNRS ETF has the potential for higher returns (and bigger losses).
What I Think
Gold investments can have a place in most balanced portfolios, but I consider it to be more of a hedging play than an investment for long-term growth. For that reason, I would lean more towards the physical gold ETF, but that’s just a personal preference. If you’re looking to invest in gold, it’s important to think about what the purpose of the investment is. To view more gold and commodity ETFs click here.
For our number one ETF pick, have a look at the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.