Fed up with S&P 500 stock prices whipping all over the past year? Some investors looking for more stability think they've found a more for-sure bet: gold ETFs.
The price of gold has vaulted more than 10% this year to $2,019.70 a troy ounce, outpacing the S&P 500's 8.3% move higher, says S&P Global Market Intelligence. Gold is now trading 20% higher than it was at its lowest point in a year. And all the major gold ETFs are gaining in step. Gold ETFs are also catching on as investors worry about the health of the U.S. banking system.
"When economic conditions weaken or become uncertain, history shows that investors turn to perceived safe-haven assets, like gold and bonds," said Mason Mendez, investment strategy analyst at Wells Fargo in a report. "The price of gold has typically risen leading up to a recession and in the months following a recession."
Mendez also points out gold tends to beat stocks during times of recession. But do gold ETFs make sense for portfolios?
Sizing Up Gold ETFs' Popularity
The number of investors considering commodity and gold ETFs is rising, Todd Rosenbluth, director of research at VettaFi says. And that's to be expected as investors look for a place to hide from market volatility and a possible recession.
Investors have ample choices when it comes to gold ETFs. There are more than 20 major gold ETFs, including eight holding a hefty $500 million or more in assets, Rosenbluth says. Sitting on more than $60 billion in assets, SPDR Gold Trust is the largest gold ETF. Just in the month of March, the ETF gained $800 million of fresh investment.
But with an annual expense ratio of 0.4%, GLD is charging more than what most other gold ETFs charge. And with gold ETFs, you don't usually get more return by paying more.
"The price of gold recently climbed higher year-to-date ... amid the collapse of U.S. regional lenders as investors sought a safer haven," Rosenbluth said. "Unlike some other commodity investment styles, there's no shortage of widely held gold ETFs."
Returns of six of the largest gold ETFs are nearly identical this year, ranging from 9.4% to 9.6%. That's not enough of a difference to get overly concerned about. That's why Rosenbluth thinks iShares Gold Trust Micro and SPDR Gold MiniShares might make more sense for some investors. IAUM only charges 0.09% annually, while GLDM assesses just 0.1%.
"The lower fees helped IAUM and GLDM modestly outperform GLD to start the year," Rosenbluth said.
Looking At Other Commodities
Gold isn't the only commodity ETF investors are looking to for shelter from economic uncertainly, Rosenbluth says. There's also interest in natural gas and crude oil ETFs.
Natural gas and oil ETFs trade based on the commodities' futures prices. And investors are anticipating strength in the energy markets due to rebounding demand from China and supply cutbacks. These commodity ETFs, though, aren't performing anywhere near as well as gold. The largest oil ETF, with $1.7 billion in assets, is United States Oil Fund. And yet shares are down 0.3% this year. And the largest natural gas ETF, United States Natural Gas Fund is down nearly 50% this year.
Gold is now the preferred commodity play. Just keep in mind that even gold tends to lag the S&P 500 long term. The SPDR Gold Trust ETF is only up 45.4% in the past five year, lagging the S&P 500's 54% rise in that time.
And given gold's big run already, the metal is still in a "prove it" mode with Mendez. "We could change our tune on gold and raise our price targets, however, should gold convincingly break out above $2,070 per ounce. We will see."
How Some Key Commodity ETFs Are Doing
Performance this year so far
| ETF | Symbol | Year-to-date % ch. | Expense ratio | Assets ($ billions) |
|---|---|---|---|---|
| SPDR Gold Trust | 9.4% | 0.40% | $59.4 | |
| iShares Gold Trust | 9.4% | 0.25% | 29.1 | |
| SPDR Gold MiniShares Trust | 9.5% | 0.10% | 6.3 | |
| abrdn Physical Gold Shares | 9.4% | 0.17% | 2.8 | |
| United States Oil Fund | -0.3% | 0.81% | 1.5 | |
| United States Natural Gas Fund | -49.9% | 1.11% | 1.3 | |
| iShares Gold Trust Micro | 9.6% | 0.09% | 1 | |
| GraniteShares Gold Trust | 9.5% | 0.18% | 1 | |
| ProShares Ultra Bloomberg Crude Oil | -5.1% | 0.95% | 0.7 | |
| Teucrium Wheat Fund | -12.8% | 1.00% | 0.2 |
Sources: S&P Global Market Intelligence, IBD
Follow Matt Krantz on Twitter @mattkrantz
