Is Cheaper Better for a Gold ETF?
Source: ETF db, Michael Johnston (7/13/10)
"GLD demonstrates most impressive rise in commodity space."
But GLD isn't the only physically backed gold ETF on the market; ETF Securities' SGOL has ~$600M in assets, while the iShares COMEX Gold Trust (IAU) finished June at about $3.4 billion. Impressive totals, but they look downright tiny next to GLD.
If iShares has its way, it might not stay that way for long. In the latest shift in the ETF competitive landscape, iShares announced it is slashing the expense ratio on IAU from 0.40% to 0.25%, making its fund more attractive than GLD from a cost perspective. iShares appears to be giving up short-term revenue in hopes of building a more substantial asset base behind its gold ETF (see Five Head-to-Head ETF Matchups).
It's an interesting move, but it remains to be seen just how important a slightly lower expense ratio is for investors. The additional 15 basis points charged by GLD works out to about $1,500 annually on a $1M investment, thus the impact for most investors will be relatively minor. It's unlikely that existing GLD investors will start pulling out and heading to the cheaper iShares alternative, but investors looking to establish a position in gold will likely gravitate towards the ETF that gives them the highest bottom line return.