The revival of gold is the envy of precious metals ETFs

The hedge fund founder, Ray Dalio, has exposed in a recent 7,000-word blog the reasons he believes that a detrimental "paradigm shift" may soon occur in global markets.

"I think it would be both less risky and more profitable to consider adding gold to his portfolio," he concluded darkly.

The lack of confidence in the global monetary system, mentioned by Dalio, is just one of the reasons for the upturn in gold this year, which has pushed prices to highs for six years.

But investors seeking to hold the yellow precious metal are increasingly favoring Exchange Traded Commodities (ETC) funds rather than direct physical property as a means of exposure. The high liquidity and low relative costs of these funds make them ideal solutions for fund managers seeking to reduce the risks badociated with their portfolios.

"The global stock markets are doing well, but the ongoing trade war is making sure they are not totally risky," said Colin Hamilton, director of commodity research at BMO Capital Markets.

"Fund managers have more capital and gold is a natural paradise; Gold ETFs provide investors with security without the concerns of management or mining that come with an equity investment. "

Gold-traded gold products have other properties that attract investors. Exchange-traded commodities on precious metals tend to be physically protected – that is, they are backed by precious metal bars stored in a safe, and that the funds have the ability to accept shipments of bullion if they wish.

"For investors who see gold as a risk overlay, it's interesting to know that what you hold represents an interest in a fund whose badets include physical metal," says materials strategist Christopher Louney. premieres at RBC Capital Markets.

The exchange-traded precious metals ETFs reached $ 9.7 billion in June, the highest level since 2016, with the bulk of these resources being converted to gold, according to RBC data. This brings the total badets under management of commodity exchange traded commodities to $ 135 billion, plus four fifths being allocated to precious metals.

Direct exposure to the underlying metals, however, is not a guarantee of outperformance over mining stocks in times of market turbulence.

A recent Bernstein badysis found that the BHP, Rio Tinto and Antofagasta miners had all outperformed the price of copper over the last 10 years.

UK market data corroborate Hamilton's statement on gold equity risk: an investment in physical gold over the last decade would have reported 52%, while the FTSE All Share Gold Miners reported only 7%, including dividends, in dollars.

Investors are not just embarking on established gold funds: suppliers are opening up new funds to capture rising gold allocations from managers. This competition, in turn, reduces costs for investors.

The Paris-based index provider, Amundi, has launched a gold-standard ETC vehicle for Europe earlier this month, with a total expense ratio of 0.19. %. This follows a downward trend in costs for its US counterparts.

There is recourse in a fund whose badets include physical metal

The GraniteShares Gold Trust, launched in August 2017, offers one of the least expensive gold funds for US investors, with a rate of only 0.175%. Increasing competition forced State Street to launch its Gold MiniShares Trust last year, with a 0.18% commission. This compares to its original Gold Trust – the largest gold-backed fund launched in 2004 – with an operating expense ratio of 0.4%.

Less expensive funds further reduce the gap in fees charged by traditional bullion storage services. BullionVault, for example, charges 0.12% for insurance and storage, and targets small investors.

This is good news for those embarking on gold, but we must remain vigilant about costs. "There are other considerations to take into account. . . the tax and transaction costs have an impact on overall expenses, "says Deborah Fuhr, Managing Partner and Founder of the ETFGI ETF Research Specialist.

She adds, "Because of their growing popularity, some commodity-related products are being used as loss-causing companies to capture some of the new funds under management."

While physical badet-backed gold funds make up the majority of ETCs, a host of more exotic, exchange-traded products have emerged in a range of risk profiles.

The WisdomTree Enhanced Commodity ETF offers investors broad basket exposure followed by the Bloomberg Commodity Index, but with a different twist. The fund is actually trying to outperform the index by detecting and exploiting the variations between futures and the spot price of various commodities, according to Nitesh Shah, head of research at WisdomTree. Since its inception in 2001, the fund has had an average performance of 5.6% per annum and largely outperformed the index.

These vehicles typically generate higher fees and can give investors a five-fold increase in gains or losses.

They also show that investing in gold and other products is far from a one way bet.

Mr. Louney of RBC also notes that interest on these funds may fluctuate. "Netbacks last month offset the net outflows of the previous three months in the ETP space for precious metals. They represent the largest return for several years, "he adds.