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5 Top Canadian Gold ETFS for September 2021 and Beyond

Posted on May 26, 2021 by Mathieu Litalien

With the advent of Canadian exchange-traded funds (ETFs), passive investing in Canada has become simple.

These days you don't need to learn how to buy individual stocks. You can instead deploy a more passive approach with ETFs.

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 $1900/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_ID Stock % Assets
10 Bxxgold09 100

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 March 2021, this Canadian ETF has $1.36 billion in assets and has a net asset value of $14.36 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 gained 24.61% whereas the iShares non-hedged ETF gained 21.75% and the CAD-Hedged ETF is up by 23.41% 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. However, as we've witnessed moving forward, this is changing as the CAD is gaining significant amounts on the USD.

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 10 year performance vs the TSX

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

wdt_ID Stock % Assets
11 Newmont Corp (NEM) 19
12 Barrick Gold Corp (ABX) 14.51
13 Franco-Nevada Corp (FNV) 8.93
14 Wheaton Precious Metals 7.02
15 Agnico Eagle Mines (AEM) 5.93
16 Sibanye Stillwater Ltd (SBSW.J) 5.49
17 Kirkland Lake Gold 3.93
18 Anglogold Ashanti (AU.J) 3.62
19 Kinross Gold Corp (K) 3.42
20 Gold Fields Ltd (GFI.J) 3.15

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 March 2021 there were 53 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 $987.91 million in assets and has a net asset value of $18.21 per share. The fund also yields a small distribution of 0.41% 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 did in 2020, and underperform in the bear market we're seeing right now.

The top 10 holdings account for 75% of assets and the three largest positions include Newmont Corp (@19%)(TSX:NEM), Barrick Gold (@14.51%)(TSX:ABX) and Franco-Nevada Corp (@8.93%)(TSX:FNV).

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

XGD 10 year performance vs the TSX

XGD 10 Year Performance Vs TSX Index

Horizons Enhanced Income Gold Producers ETF (TSX:HEP)

wdt_ID Stock % Assets
11 Wheaton Precious Metals (WPM.TO0 6.71
12 Kinross Gold (K) 6.44
13 Royal Gold (RGLD) 7.89
14 Pan American Silver (PAAS) 9.43
15 Osisko Gold (OR) 7.74
16 Franco-Nevada (FNV) 7.01
17 Endeavour Mining (EDV) 7.15
18 Anglogold Ashanti (AU.JO) 7.01
19 Agnico Eagle Mines (AEM.TO) 6.50
20 Newmont Corp (NEM) 7.94

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 $113.92 million and a net asset value of $29.65 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 40.77% and it currently yields a very attractive 7.94% ($0.08 per share paid out monthly).

Since this is an equally weighted exchange traded fund, the top 10 stocks all fall between 6.44% and 9.43% of holdings. In total, they account for 73.82% of total assets.

Among the notable names you’ll find Franco-Nevada (@7.01%)(TSX:FNV) , Newmont Corp (@7.94%)(NEM) and Kinross Gold (@6.44%)(TSX:K).

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

HEP 5 year performance vs the TSX

TSE:HEP Returns Vs TSX

BMO Junior Gold Index ETF (TSX:ZJG)

wdt_ID Stock % Assets
11 Centerra Gold (CG) 3.94
12 Coeur Mining (CDE) 3.88
13 Yamana Gold (YRI) 7.82
14 Novagold Resources (NG) 3.86
15 Equinox Gold (EQX) 3.63
16 Royal Gold (RGLD) 12.33
17 Endeavour Mining (EDV) 4.57
18 B2Gold Corp (BTO) 9.13
19 SSR Mining (SSRM) 6.77
20 Alamos Gold (AGI) 5.54

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 March 2021 has $74.9 million in assets and a net asset value of $67.80 per share. In total, the fund has 38 holdings, 83% of which are Canadian-listed junior minors.

At 61.47%, the top 10 holdings are less concentrated than some of the other funds on this list. 

As we've witnessed with the soaring price of gold in 2020 this gold ETF dominated because of its junior miner exposure. However, if you fast forward to March 2021, it has suffered significantly.

If you look at the 5 year chart below, you'll see this junior gold ETF outpace the TSX extensively during the rise of gold, but fall even further.

So keep in mind, without question, this is the riskiest fund on the list.

ZJG 5 year performance vs the TSX

TSE: ZJG Vs TSX Index

Horizons Gold Yield ETF (TSX:HGY)

wdt_ID Stock % Assets
11 SPDR GOLD MINISHARES TRUST 96
12 Cash 4
112 Variety of covered calls

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 6.68%, has $59.06 million in assets and has a net asset value of $5.21 per share.

Unfortunately, this ETFs MER fee of 0.60%, which is equal to $6 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.

SPDR Gold Shares (GLD) is the primary holding, making up over 96% of assets.

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

TSE:HGY Vs TSX

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in the post below.

Mathieu Litalien

About the author

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 and Stocktrades. Mathieu also focuses primarily on stock research and content production for Stocktrades.ca Premium and the Stocktrades blog.