December 2021
Content provided by The Perth Mint
Content provided by The Perth Mint
In the last 15 years, gold exchange traded funds (ETFs) have become an increasingly popular way for investors, including SMSF trustees, to gain exposure to the precious metal in their portfolio.
Australia was at the forefront of the development of the gold ETF market, with the Australian Securities Exchange (ASX) listing gold ETFs, including Perth Mint Gold (ASX:PMGOLD), ahead of most international exchanges in 2003.
Bought and sold like a regular share, such products track the price of gold, offering the same economic exposure to investors as physical gold bars or coins, without the need for investors to personally store the gold bullion themselves.
This tends to make them easier and more liquid to trade from an investor’s perspective, while the fact they are listed on a regulated exchange provides additional comfort.
Gold ETFs also tend to be the lowest cost way for investors to incorporate gold into their portfolio, with transaction spreads that are typically sub 0.10% to buy and sell. This means a AUD 50,000 investment into a gold ETF would likely only incur a cost of AUD 50 maximum plus brokerage.
Whilst most gold ETFs do a very good job of tracking the gold price itself, they are not all created equal. Below is a list of questions investors would be well served considering when it comes to picking a gold ETF should they decide to allocate a portion of their portfolio to the precious metal.
Questions to ask when picking a gold ETF – and the answer for Perth Mint Gold (ASX:PMGOLD)
What is the management fee?
Management fees paid to the product issuer eat away at the net return an investor earns on any asset class, including gold. All other things being equal, the lower the management fee the better, so if the gold ETF you are looking at charges more than its peers, it’s certainly worth asking why.
ASX:PMGOLD charges a management fee of just 0.15%.
Who is the product issuer?
It is critical to know the background of the organisation issuing any financial product, including gold ETFs. When was it founded? Who owns the company? How big is its balance sheet? What expertise does it have in the precious metal market? These are all questions worth asking when assessing a gold ETF.
ASX:PMGOLD is issued by Gold Corporation (which trades as The Perth Mint). Gold Corporation has more than a century of experience dealing in precious metals. It is 100% owned by the Government of Western Australia, has more than AUD 6 billion in assets and turns over more than AUD 20 billion in precious metals each year.
Who are the counterparties to the gold ETF?
Apart from the product issuer, most, though not all, gold ETFs will have at least three other counterparties. These include the trustee, the custodian (where the gold sits), and the market maker (or market makers), who provide liquidity to the product.
ASX:PMGOLD is fully operated by Gold Corporation, which is the issuer, custodian and market maker for the product.
To find out about more questions you should ask when picking a gold ETF, click below to download the full report.
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Disclaimer: Any opinions expressed in this article are subject to change without notice. The information in this article and the links provided are for general information only and do not contain all information that may be material to you making an investment decision. The Perth Mint is not a financial adviser and nothing in this article constitutes financial, investment, legal, tax or other advice. Before making an investment decision you should consider whether it is suitable for you in light of your investment profile, objectives, financial circumstances and the merits and risks involved. You should consider seeking independent financial advice to check how the information in this article relates to your unique circumstances. All data, including prices, quotes, valuations and statistics included have been obtained from sources The Perth Mint deems to be reliable, but have not been independently verified by The Perth Mint and we do not guarantee their accuracy or completeness. The Perth Mint does not accept any liability, including without limitation any liability due to any fault, negligence, default or lack of care on the part of The Perth Mint, for any loss arising from the use of, reliance on, or otherwise in connection with the information contained in this article.