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January 18, 2021

5 Top Canadian Gold ETFS for 2021 and Beyond

Disclaimer: The writer of this article may have positions in the securities mentioned in this article. The fact they hold positions in securities has had no impact on the production of this article

By Mathieu Litalien

January 18, 2021

With the advent of Canadian exchange-traded funds (ETFs), passive investing in Canada has become simple. ETFs are also an excellent way to gain exposure to particular industries without having to pick individual stocks.

A piece of investment advice we often give (an investment strategy use at your own discretion of course) is that every portfolio should have some sort of exposure to gold. Gold has long been considered a defensive investment and helps insulate your portfolio against a variety of market conditions, potential bear markets, or market volatility.

There are some investors who buy bonds, or even Canadian bond ETFs for stability, which isn't a bad decision either. But in an ultra low interest rate environment, bonds will no doubt struggle.

With that being said, stocks that rely on a commodity, like oil, gold or even other precious metals like cobalt, pose more risk. And our stock exchange here in Canada, the TSX, is loaded with these types of stocks.

The economic downfall from COVID-19 has presented investors with a huge opportunity with gold stocks

Gold producers, explorers, and streamers jumped to 52-week highs and were are of the best performing TSX stocks at the time of writing. As of right now, gold stocks and physical gold are extremely popular in Canada, as price levels are nearing $2000/oz, levels we haven't witnessed in some time.

So where should one invest? Investing in individual gold producers can be difficult, risky, and not suggested for those with a low risk tolerance. Yet purchasing physical gold has been somewhat underwhelming in terms of returns for some time now.

There are a plethora of small, mid, and large sized gold stocks and it’s not easy picking the winners.

As we’ve seen in the past, investors who buy the wrong gold producer or explorer can lead to big losses. Gold companies that are set up for long term success are a rarity, and most investors end up losing money when they get into precious metals or the companies that mine them.

Investing in a Canadian gold ETF is a great way to increase your exposure to the precious metal while minimizing your risk.

Ultimately, the performance of these ETFs will be dependent on the price of gold, but for investors looking for lower risk, an ETF inherently won’t be as volatile as buying individual stocks on the stock market.

Keep in mind however, that with any ETF, you should be looking for a blend of low cost and high returns. Mediocre ETFs with high expense fees can eat into returns over the long term and cause you to significantly underperform the market.

So what is the best gold etf in Canada moving forward in 2020?

iShares Gold Bullion ETF (CAD-Hedged) (TSX:CGL)

iShares Gold Bullion ETF (Non-Hedged) (TSX:CGL.C)

wdt_IDStock% Assets


Interested in physical gold?

iShares Gold Bullion ETF is the closest thing investors will get to owning physical gold without actually having to buy, hold, and store it. There are no gold mining companies in this ETF.

There are two funds – the one that is hedged to the Canadian dollar (TSX:CGL) and the non-hedged version (TSX:CGL.C).

The objective of the fund is to replicate the performance of the price of gold bullion for investors, less expenses and fees.

As of September 2020, this Canadian ETF has $1.08 billion in assets and has a net asset value of $15.10 per share. The funds MER expenses are 0.50% which is equal to $5 for every $1,000 invested.

In 2020, the price of gold bullion has gained 28.6% whereas the iShares non-hedged ETF is up by 29.1% and the CAD-Hedged ETF is up by 27.3% over the same period. Interestingly, when you look further out the performance is less stable.

The non-hedged version has outperformed the gold bullion in a big way. This is due in large part to the strength of the USD in comparison to the CAD.

Overall, if you're interested in physical gold but don't want to go through the hassle, both these gold etfs provide an excellent alternative for long term investments.

CGL-C 5 year performance vs the TSX

CGL-C 5 Year Performance Vs TSX
Charts provided by StockRover. Grab Stockrover Here

iShares S&P/TSX Global Gold Index ETF (TSX:XGD)

wdt_IDStock% Assets
11Newmont Corp (NEM)18.75
12Barrick Gold Corp (ABX)18.05
13Franco-Nevada Corp (FNV)10.01
14Wheaton Precious Metals6.76
15Agnico Eagle Mines (AEM)5.83
16Anglogold Ashanti (AU.JO)4.60
17Kirkland Lake Gold4
18Kinross Gold (K)3.42
19Gold Fields Ltd (GFI.JO)3.14
20Royal Gold (RGL.D)3.09

The S&P/TSX Global Gold Index (TSX:XGD) is the most popular in terms of tracking the performance of the entire gold industry. It includes producers of gold bullion and gold related products and streaming companies. As of September 2020 there were 38 Index constituents.

The iShare’s XGD product aims to replicate the S&P/TSX Global Gold Index. It has a relatively high risk profile and has MER fees of 0.55%. This equals $5.50 for every $1,000 invested.

It is one of the most liquid gold ETFs in Canada with $1.41 billion in assets and has a net asset value of $22.63 per share. The fund also yields a small distribution of 0.15% quarterly.

Since this is an ETF focused on producers, it has a much higher risk profile than gold bullion itself. Investors can expect this ETF to outperform in a gold bull market much like it has recently, and underperform in a gold bear market.

As gold pushed through resistance to all time highs recently, XGD has more than doubled the performance of gold over a 1 year time period (56.69% vs 31%).

The top 10 holdings account for 78.33% of assets and the three largest positions include Newmont Corp (@18.75%)(TSX:NEM), Barrick Gold (@18.05%)(TSX:ABX) and Franco-Nevada Corp (@10.01%)(TSX:FNV).

This is the best ETF to own if you want high exposure to the major producers and streamers in the industry.

XGD 5 year performance vs the TSX

XGD Gold ETF 5 Year Performance Vs TSX
Charts provided by StockRover. Grab Stockrover Here

Horizons Enhanced Income Gold Producers ETF (TSX:HEP)

wdt_IDStock% Assets
11Franco-Nevada Corp (FNV)7.05
12Newmont Corp (NEM)6.3
13Yamana Gold (YRI)7.78
14Pan American Silver (PAAS)9.27
15Wheaton Precious Metals (WPM)7.46
16Agnico Eagle Mines (AEM)7.21
17Osisko Gold Royalties (OR)7.33
18Royal Gold (RGLD)7.27
19B2 Gold (BTO)6.97
20Endeavour Mining8.47

If you are an investor looking for a more balanced approach and a fund that will generate income, than the Horizons Enhanced Income Gold Producers ETF (TSX:HEP) is a good choice.

Unlike XGD, this exchange traded fund aims to have an equal weighting of North American listed gold stocks and provide an attractive monthly distribution.

It has assets of $126.66 million and a net asset value of $37.21 per share. The fund also has a higher MER at 0.65% but thanks to the income strategy, it is one of the lower risk ETFs in the industry.

Once again, this ETF will outperform when the price of gold rises and underperform when the price of gold drops.

Over the past year, it generated total returns of 42.86% and it currently yields a very attractive 5.05% ($0.08 per share paid out monthly).

Since this is an equally weighted exchange traded fund, the top 10 stocks all fall between 6.34% and 9.27% of holdings. In total, they account for 75.15% of total assets.

Among the notable names you’ll find Franco-Nevada (@7.05%)(TSX:FNV) , Newmont Corp (@6.34%)(NEM) and Yamana Gold (@7.78%)(TSX:YRI).

Overall, there is a nice mix of junior, mid-sized and large cap gold companies.

HEP 5 year performance vs the TSX

HEP Gold ETF Vs TSX 5 Year
Charts provided by StockRover. Grab Stockrover Here

BMO Junior Gold Index ETF (TSX:ZJG)

wdt_IDStock% Assets
11Iamgold Corp (IMG)4.03
12Pretium Resources (PVG)3.74
13Novagold Resources (NG)5.27
14B2Gold Corp (BTO)13.04
15Yamana Gold (YRI)11.86
16Alamos Gold (AGI)7.31
17Endeavour Mining (EDV)4.22
18SSR Mining (SSRM)5.45
19Centerra Gold (CG)5.02
20Alacer Gold Corp (ASR)4.24

In the mood for a little more risk? Consider the BMO Junior Gold Index ETF (TSX:ZJG).

The fund is focused on the smaller industry players and seeks to replicate, net of expenses, the Dow Jones North American Select Junior Gold Index. The Index contains junior gold exploration, development and mining stocks.

The fund has an MER ratio of 0.55% and as of September 2020 has $114.55 million in assets and a net asset value of $83.51 per share. In total, the fund has 34 holdings, 83% of which are Canadian-listed junior minors.

At 64.18%, the top 10 holdings are less concentrated than some of the other funds on this list. The Top 3 account for approximately 31% of assets and include B2Gold Corp (@13.04%)(TSX:BTO), Yamana Gold (@11.86%) and Alamos Gold (@7.31%)(TSX:AGI).

As we've witnessed with the soaring price of gold right now, this gold ETF is simply dominating the scene. If you look at the 5 year chart below, you'll see this junior gold ETF outproduce the TSX in terms of returns by over 10X.

Keep in mind however, without question, this is the riskiest fund on the list.

ZJG 5 year performance vs the TSX

ZJG 5 Year Performance Vs TSX GOld ETF
Charts provided by StockRover. Grab Stockrover Here

Horizons Gold Yield ETF (TSX:HGY)

wdt_IDStock% Assets
11GraniteShares Gold Trust59.01
12SPDR® Gold Shares37.39

The Horizons Gold Yield ETF (TSX:HGY) employs a covered call strategy to provide investors with exposure to gold hedged to the CAD and tax-efficient distributions.

As of writing, Horizons’ currently yields an attractive 4.41% ($0.02 monthly), has $49.36 million in assets and has a net asset value of $5.72 per share.

Unfortunately, this ETFs MER fee of 1.15%, which is equal to $11.50 for every $1,000 invested, is quite expensive.

Of all those on this list, HGY is the one that tracks the price of gold the closest – if you include the distribution. If you strip out the yield, it has actually underperformed.

The fund is a unique product in that it holds gold ETFs as opposed to the physical metal or companies in the industry.

U.S. based GraniteShares Gold Trust (BAR) and SPDR Gold Shares (GLD) are the two major holdings.

They account for 99.86% of assets and represent 59.01% and 37.39% respectively.

GLD is considered the “gold standard’ for tracking the precious metal and holds the physical metal. Both GraniteShares Gold Trust and SPDR Gold Shares are the two ETFs that most closely track the price of gold.

This fund is not for everyone. If all you are looking to do is increase your exposure to gold, then the other options on this list may be better options. This is especially true because of the high MER fees.

On the other hand, it is a unique product in that it allows you to increase exposure to goal and generate income. Although similar to the HEP fund, it is less risky and volatile. HGY invests in funds that hold physical gold as opposed to companies that produce physical gold.

As we’ve seen, the ETFs whose primary holdings are gold producers tend to be more volatile. These ETFs tend to outperform in a gold bull market and can significantly underperform when gold struggles.

HGY 5 year performance vs the TSX

TSX:HGY 5 year performance vs TSX
Charts provided by StockRover. Grab Stockrover Here

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Mathieu Litalien

Mathieu is an individual investor and has been investing part-time for the better part of the past 20 years. He is primarily interested in fundamental analysis, focusing on the long-term and his portfolio is composed primarily of dividend-paying equities. Mathieu has a moderate risk profile and also looks for growth and value. His passion for finance and the markets have led him to his MBA and writing for Seeking Alpha, Motley Fool and Stocktrades. Mathieu also focuses primarily on stock research and content production for Stocktrades.ca Premium and the Stocktrades blog.

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