With the advent of exchange-traded funds (ETFs), passive investing has become simple. ETFs are also an excellent way to gain exposure to particular industries without having to pick individual stocks. A prime example would be the fact you can buy an ETF that focuses directly on Canadian banks.
Every portfolio should have some sort of exposure to gold. Gold has long been considered a defensive investment and helps insulate your portfolio against potential bear markets, or market volatility.
In mid-2019, gold broke through key resistance and finally put its multi-year bear market in the rear-view mirror.
Gold producers, explorers, and streamers jumped to 52-week highs and were some of the best performing stocks on TSX Index. In 2020, this trend has continued as virus fears have accelerated an investment shift to safety.
So where should one invest? Investing in individual producers can be difficult.
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, investing in the wrong producer or explorer can lead to big losses.
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 an ETF inherently won’t be as volatile as buying individual stocks.
With this in mind, let’s take a look at the top Canadian Gold ETFs which provide a low-cost and passive investment solution for investors.
iShares Gold Bullion ETF (CAD-Hedged) (TSX:CGL)
iShares Gold Bullion ETF (Non-Hedged) (TSX:CGL.C)
Price (All for CGL): $13.91
Expense Ratio: 0.55%
Net Assets: $687.55 Million
5 Yr Return: 3.07%
Interested in gold?
iShares Gold Bullion ETF is the closest thing investors will get to owning the metal without actually having to physically buy, hold, and store it. 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, less expenses and fees. As of January 31, 2020, the fund has $687.5 million in assets and has a net asset value of $13.28 per share. The funds MER expenses are 0.55% which is equal to $5.50 for every $1,000 invested.
Over the past year, the price of gold has gained 17.68% whereas the iShares non-hedged ETF is up by 22.48% and the CAD-Hedged ETF is up by 20.49% over the same period. Interestingly, when you look further out the performance is less stable.
The non-hedged version has outperformed in a big way. This is due in large part to the strength of the USD in comparison to the CAD. Over the past 10-years CGL.C has gained 45% versus the 8% posted by CGL.
iShares S&P/TSX Global Gold Index ETF (TSX:XGD)
|11||Newmont Corp (NEM)||19.31|
|12||Barrick Gold Corp (ABX)||17.22|
|13||Franco-Nevada Corp (FNV)||11.21|
|14||Agnico Eagle Mines (AEM)||7.75|
|15||Anglogold Ashanti (AU.JO)||4.39|
|16||Kirkland Lake (KL)||4.10|
|17||Royal Gold (RGL.D)||3.95|
|18||Kinross Gold (K)||3.32|
|20||Gold Fields Ltd (GFI.JO)|
Expense Ratio: 0.61%
Net Assets: $907.2 Million
5 Yr Return: 6.90%
The S&P/TSX Global Gold Index (TSX:XGD) is the most popular in terms of tracking the performance of the entire industry. It includes producers of gold and gold related products and streaming companies. As of January 31, 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 0.61%. This equals $6.10 for every $1,000 invested.
It is one of the most liquid gold ETFs with $907.12 million in assets and has a net asset value of $17.08 per share. The fund also yields a small distribution of 0.52% quarterly.
Since this is an ETF focused on producers, it has a much higher risk profile than gold itself. Investors can expect this ETF to outperform in a gold bull market, and underperform in a gold bear market.
As gold pushed through resistance to multiyear highs over the past year, XGD has more than doubled the performance of gold (41.72% vs 17.69%).
This is the best ETF to own if you want high exposure to the major producers and streamers in the industry.
Horizons Enhanced Income Gold Producers ETF (TSX:HEP)
|11||Franco-Nevada Corp (FNV)||8.55|
|12||Newmont Corp (NEM)||8.14|
|13||Yamana Gold (YRI)||8.04|
|14||Pan American Silver (PAAS)||7.60|
|15||Wheaton Precious Metals (WPM)||7.51|
|16||Agnico Eagle Mines (AEM)||7.50|
|17||Barrick Gold Corp (ABX)||7.18|
|18||Anglogold Ashanti (AU.JO)||7.14|
|19||Endeavour Mining (EDV)||6.85|
|20||Kinross Gold (K)||6.82|
Expense Ratio: 0.65%
Net Assets: $84.75 Million
5 Yr Return: 9.16%
If you are 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, the fund aims to have an equal weighting of North American listed gold stocks and provide an attractive monthly distribution.
It has assets of $84.7 million and a net asset value of $29.01 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 32.23% and it currently yields a very attractive 4.67% ($0.1281 per share paid out monthly).
Since this is an equally weighted ETF, the top 10 stocks all fall between 6.8% and 8.55% of holdings. In total, they account for 75.32% of total assets. Among the notable names you’ll find Franco-Nevada (@8.5%)(TSX:FNV) , Newmont Corp (@8.14%)(NEM) and Yamana Gold (@8.04%)(TSX:YRI).
Overall, there is a nice mix of junior, mid-sized and large cap gold companies.
BMO Junior Gold Index ETF (TSX:ZJG)
|11||B2Gold Corp (BTO)||10.79|
|12||Yamana Gold (YRI)||9.40|
|13||Detour Gold Corp (DGC)||7.69|
|14||Alamos Gold (AGI(||5.99|
|15||SSR Mining (SSRM)||5.47|
|16||Novagold Resources (NG)||5.28|
|17||Pretium Resources (PVG)||4.92|
|18||Centerra Gold (CG)||4.17|
|19||Endeavour Mining (EDV)||3.77|
|20||Coeur Mining (CDE)||3.52|
Expense Ratio: 0.55%
Net Assets: $96.3 Million
5 Yr Return: 7.20%
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 0.60% and as of January 31, 2020 has $96.3 million in assets and a net asset value of $61.98 per share. In total, the fund has 34 holdings, 83% of which are Canadian-listed junior minors.
At 60.99%, the top 10 holdings are less concentrated than some of the other funds on this list. The Top 3 account for approximately 27% of assets and include B2Gold Corp (@10.79%)(TSX:BTO), Yamana Gold (@9.40%) and Alamos Gold (@5.99%)(TSX:AGI).
The fund will again do well when the price of gold rises, but the downside is considerably more than the other ETFs on this list. Case in point, over the past 10-years the ETF has lost 50% of its value which is more than double most of the funds on this list and well below the 8% jump in the price of gold.
Without question, this is the riskiest fund on the list.
Horizons Gold Yield ETF (TSX:HGY)
|11||GraniteShares Gold Trust||60.61|
|12||SPDR® Gold Shares||38.44|
Expense Ratio: 11.50%
Net Assets: $36.52 Million
5 Yr Return: 1.54%
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 4.10% ($0.02 monthly), has $36.5 million in assets and has a net asset value of $5.22 per share. Unfortunately, it has a relatively high MER fee of 1.15% which is equal to $11.50 for every $1,000 invested.
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 60.61% and 38.44% respectively. GLD is considered the “gold standard’ for tracking the precious metal and holds the physical metal. Both BAR and GLD are the two funds 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 the metal as opposed to companies that produce it.
As we’ve seen, the ETFs whose primary holdings are gold producers tend to be more volatile. They outperform in a gold bull market and can significantly underperform when gold struggles.