How gold ETPs keep fees and costs low
As with all managed funds, gold ETPs incur costs and fees charged to their investors to cover the expenses of operating the product on a regulated exchange.
Unlike most other ETPs, which tend to have some cash in them as part of the portfolio of assets owned on behalf of investors, gold ETPs don’t have much, and in some cases, don’t hold any cash at all.
This is by design, as gold ETPs are designed to track the gold price and must, therefore, be fully invested in gold.
To charge a fee, gold ETPs typically build in a daily reduction to the metal entitlement that each unit, share or option (not all gold ETPs follow the same legal structure) provides to each investor.
By reducing the metal entitlement, the gold ETP issuer can then effectively use the gold it has ‘taken’ to pay the management fee the investors owe.
For example, if we assume a gold ETP entitled an investor to one troy ounce of gold for every unit they bought on the day the gold ETP was launched, and the gold ETP had a management fee of 1% per annum, then after one year the metal entitlement of that one unit would be 0.99 troy ounces of gold.
If we also assume that the gold price was AUD 2,500 per troy ounce on the day it was launched, and was still worth AUD 2,500 one year later, then the price the gold ETP would trade in the market on these two days would look like this:
Date
Gold price - AUD
Metal entitlement - troy ounces
ETF price per unit - AUD
Launch date
2,500
1.000
2,500
One year later
2,500
0.990
2,475
The Perth Mint gold ETP has a management fee of 0.15% (ASX:PMGOLD), making it the lowest cost gold ETP on the ASX.
Don’t lose returns on fees
Costs are a critical factor for investors to consider as the trading spreads incurred when buying and selling an asset, as well as ongoing management fees, eat away at the returns generated.
One of the advantages of gold ETPs is that they are inexpensive both from a management fee, as well as a trading cost perspective.
This can be seen in the accompanying tables which highlight the management fees and trading spreads of a variety of ETPs available through the Australian Securities Exchange (ASX), including The Perth Mint’s ETP ASX:PMGOLD.
MANAGEMENT FEES FOR ASX LISTED ETPS
Asset class
Management fee (%) per annum
Currency
0.82
Infrastructure
0.68
Commodities
0.54
Australian Equities
0.56
Global Equities
0.62
Property
0.51
Mixed Asset
0.36
Fixed Income
0.32
PMGOLD
0.15
Source: ASX Funds Statistic Management expense ratio for March 2022 - ASX funds statistics
This table highlights the fact that the Perth Mint’s gold ETP is at the very low end of the cost range, with management fees that are much less expensive than nearly every asset class available to investors via an ASX listed ETP.
It is not just management fees where gold ETPs are at the lower end of the cost range.
TRADING SPREADS FOR ASX LISTED ETPS
Asset class
Trading average spread (%) per sectors
Commodities
0.39
Mixed Asset
0.23
Infrastructure
0.29
Global Equities
0.31
Property
0.23
Australian Equities
0.25
Fixed Income
0.18
Currency
0.25
PMGOLD
0.09
Source: ASX Funds Statistic Management expense ratio for March 2022 - ASX funds statistics
The low costs associated with The Perth Mint gold ETP (PMGOLD) is obviously beneficial to investors who will get to keep more of the return generated by the gold for themselves, rather than paying it away in product fees.
It’s not just the management fees that are low, the benefits of a gold ETP through The Perth Mint also includes a guaranteed backing from the Government of Western Australia. These are the only government-backed ETPs in the world.
To find out more about The Perth Mint’s gold ETP (ASX:PMGOLD) visit: www.perthmint.com/invest/perth-mint-gold-ASX-PMGOLD/
DISCLAIMER
Past performance does not guarantee future results. The information in this article and the links provided are for general information only and should not be taken as constituting professional advice from The Perth Mint. The Perth Mint is not a financial adviser. 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 we do not guarantee their accuracy or completeness. The Perth Mint is not liable for any loss caused, whether due to negligence or otherwise, arising from the use of, or reliance on, the information provided directly or indirectly, by use of this article.
