Latest news, trends and ideas for investing with exchange traded funds | ETF Commentary

BlackRock has aggressively cut the annual expense ratio for the iShares Comex Gold Trust (IAU) in a bid to lure investors from the $56 billion SPDR Gold Shares (GLD).

According to the WSJ’s Ian Salisbury, the expense ratio for IAU was cut from  0.40% to 0.25%.  The expense ratio for GLD remains at 0.40%.

Salisbury warns GLD investors to think twice before switching to IAU.  A marginal tax rate of 28% and trading costs could offset any savings coming from the lower annual expense ratio.

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Forbes recently interviewed Jean-Marie Eveillard, the semiretired manager at First Eagle Investment Management, on his use of gold as part of his famously patient approach to value investing.

According to the Forbes piece, Eveillard suggests individuals put 5 to 10% of their assets into gold.  Four ETFs listed by Forbes as “smart ways to play” gold include:

iShares Comex Gold Trust (IAU)

Market Vectors Gold Miners ETF (GDX)

PowerShares DB Gold Fund (DGL)

SPDR Gold Shares (GLD)

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The Journal’s Tom Lauricella recently took a look at whether investors should own gold stocks or ETFs that track the price of gold.

Since gold miners have leveraged exposure to the price of gold, gold mining stocks tend to be more volatile than the price of the metal. Gold stocks are also subject to other risks such as production delays or being swept up in a broader market move. For example, at the height of the financial panic, the SPDR Gold Shares (GLD) was down 21% while the average precious metals stock fund lost 52%.

In addition to GLD, Lauricella also mentions the iShares Comex Gold Trust (IAU) as an alternative way to gain exposure to the price of gold.

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Rising investor interest in Gold as an asset class has produced a bounty of Gold ETFs and ETNs.

In the column Gold Rally Spurs a Boom in Funds, the WSJ’s John Spence writes that investors worried about inflation and the global economy are stuffing cash into gold ETFs. As a result, we now have more choices than ever when it comes to gaining exposure to gold through exchange traded products.

Spences lists several ETFs and ETNs that provide exposure to gold including:

• ETFS Physical Swiss Gold Shares (SGOL)
• iShares Comex Gold Trust (IAU)
• SPDR Gold Shares (GLD)
• E-TRACS UBS Bloomberg CMCI Gold ETN (UBG)
• PowerShares DB Gold Fund (DGL)
• PowerShares DB Double Long ETN (DGP)
• ProShares Ultra Gold (UGL)
• PowerShares DB Gold Double Short ETN (DZZ)
• PowerShares DB Gold Short ETN (DGZ)
• ProShares UltraShort Gold (GLL)

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I saw a presentation from the World Gold Council today and was impressed with the investment case for gold as portfolio diversification tool.

While gold has shown strong returns over recent years, its most valuable contribution to a portfolio lies in the fact that it is not correlated with most other assets, as shown in the chart.

Several ETFs provide a vehicle for investing in gold.

The largest gold ETF is SPDR Gold Shares (GLD). The $14 billion fund offers a claim on actual gold bullion that sits in a vault in London.

The COMEX Gold Trust (IAU) is another fund that owns gold bullion. The DB Gold Fund (DGL) tracks the performance of gold through futures contracts.

See the ETF Directory for a complete listing of commodities etfs.

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In the article Gold ETFs Aren’t Glittering Despite Turmoil, Smart Money columnist Dan Burrows points out that gold ETFs are well off of their March highs and are even being outperformed by the stocks of discounters like Wal-Mart (WMT) and Family Dollar (FDO).

The puzzle comes from the fact that central banks around the world are pumping liquidity into the financial system – an act that would normally create the threat of inflation and cause the price of gold to rise.

However, the massive deleveraging that has hit stocks is also affecting gold. Liquidation by hedge funds has brought down commodity prices as well as stock prices according to the article.

Gold ETFs include SPDR Gold Shares (GLD), the COMEX Gold Trust (IAU) and the Market Vectors Gold Miners ETF (GDX).

ETFs where WalMart represents more than 10% of holdings include the PowerShares FTSE RAFI Consumer Services Sector Portfolio (PRFS), the Consumer Staples Select Sector SPDR Fund (XLP), and the Dow Jones U.S. Consumer Services Sector Index Fund (IYC).

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