Gold and Commodities

Where the money actually sits

The category holds 23 funds and 387.1B in combined assets, and those assets are not spread evenly. SPDR Gold Shares (GLD), run by SPDR, holds 141.7B on its own, and the three largest, SPDR Gold Shares (GLD), iShares Gold Trust (IAU) and SPDR Gold MiniShares Trust (GLDM), account for 60.6 % of the total. At the other end, iShares Diversified Commodity Swap UCITS ETF USD (RICI) manages only 63M. Size is no guarantee of quality, but it decides two very concrete things: the spread between buying and selling price you pay on every order, and the odds that the fund still exists in ten years.

The fee gap, in money

Ongoing charges run from 0.09 % for Materials Select Sector SPDR Fund (XLB) to 1.06 % for United States Natural Gas Fund (UNG), a gap of 0.97 points, against a category average of 0.34 %. On £10,000 held for ten years that gap is roughly 970 in extra charges, before counting the return that money would itself have earned. It is the one variable in the comparison known in advance: past performance does not repeat, fees repeat every year.

Two funds in one category do not hold the same basket

The 23 funds listed track 17 different indices, among them LBMA Gold Price, LBMA Silver Price, NYSE Arca Gold Miners and MVIS Global Junior Gold Miners. The largest tracks LBMA Gold Price. That spread is why two funds filed under the same theme can differ by several points over a year: they hold different securities, weight them differently and rebalance on different dates. Each fund page names its index, and that is where a serious comparison starts.

Replication and domicile

16 funds hold the constituents of their index directly, 7 use a swap, including Xtrackers Bloomberg Commodity Swap UCITS ETF 2C EUR Hedged (XDBG) from Xtrackers. Synthetic replication often tracks more closely and reaches markets that are hard to hold directly, at the price of a counterparty risk that is regulated but real. Physical replication is easier to understand and allows securities lending, which earns the fund income and adds its own risk.

11 of the 23 funds are domiciled in US, the rest in IE, JE and LU. Domicile sets the withholding tax the fund itself suffers on the dividends it receives, a cost absent from the stated fee but present in the return, and it also sets your own tax treatment depending on where you live.

Accumulate or take the income

16 funds accumulate dividends, 7 pay them out. The largest accumulating share class is SPDR Gold Shares (GLD), the largest distributing one VanEck Gold Miners ETF (GDX). The choice is not about yield, both versions of the same index return the same before tax, but about tax and discipline: the accumulating class reinvests with no cost and no decision, the distributing class pays income that is taxable in the year it arrives.

Age and critical size

The oldest fund in the category, Materials Select Sector SPDR Fund (XLB), launched on 1998-12-16, giving 28 years of history, and the newest, iShares Diversified Commodity Swap UCITS ETF USD (RICI), on 2020-08-07. A long record shows how the fund behaved in a fall, which no one-year number can. A fund launched two years ago has lived through a single market regime.

2 of the 23 funds manage under 100 million, among them Xtrackers Bloomberg Commodity ex-Agriculture & Livestock Swap UCITS ETF (XEXA) and iShares Diversified Commodity Swap UCITS ETF USD (RICI). Below that level a fund rarely pays for its issuer, and a closure forces a sale on the issuer's timetable rather than yours, with capital gains tax along the way.