Investing through exchange-traded funds (ETFs) is the most popular avenue SMSFs are using when including an allocation to gold in their portfolios, a specialist manager has said.
“Overwhelmingly now the SMSF market, as well as financial planners that help SMSF trustees, are using the ETFs {to invest in gold],” Perth Mint listed products and investment research manager Jordan Eliseo said during a presentation at the recent SMSF + Investor Virtual Event.
Eliseo pointed out ETFs are the favoured avenue to invest in gold among SMSFs because they are cost effective, simple to use because they can be purchased alongside any other listed security, and valuations for audit purposes are also straightforward.
However, he identified some shortcomings in using ETFs for gold allocations.
“The negatives, if you want to call them that, are that there are often a lot of counterparties involved in the running of an ETF, you don’t necessarily have legal title to gold – you might have a claim on gold rather than direct ownership – and some products don‘t allow you to actually take delivery in gold,” he noted.
With regard to cost, he highlighted the fact that gold ETFs are cheaper than almost every other ETF covering rival asset classes.
To this end, he noted Australian Securities Exchange information showed only fixed income ETFs had a lower average management fee in percentage terms.
Specifically, the data indicated currency ETFs had the highest average management fee being levied at 0.74 per cent followed by infrastructure ETFs with an average management fee of 0.67 per cent.
By comparison, the Perth Mint ETF charges a yearly management fee of 0.15 per cent.
This characteristic was reinforced when examining trading fees, Eliseo said.
“When you look at a trading fee perspective, gold is actually the lowest-cost asset class that you could incorporate into a portfolio. That typically surprises a lot of people who think that gold is at the more expensive end. But the reality is that gold is incredibly cost-efficient in a portfolio,” he said.
“That’s an attribute. It’s obviously better to be able to access an investment at low cost rather than high cost and gold when purchased in this form has that going for it.”
