GLD is the Largest, But GLDM Provides Cheaper Gold Exposure

To start with, it’s important to note that precious metals — and gold in particular — are often considered a wise addition to most portfolios. Gold, for example, has long been viewed as a central hedge against inflation — a process characterized by rising prices and a corresponding reduction in the value of money itself. Therefore, it makes sense to own some gold, and financial advisors typically recommend between 5% to 10% allocation to the yellow metal.

So, for investors considering gold, what’s the best way to do it? Obviously, someone could purchase physical gold bullion and keep it in a safe place. But, short of that, most investors are happy to simple own gold via through their broker. In that case, ETFs are the way to go. They offer exposure to the price of physical gold, without the hassle of storage and safe keeping. What’s more, gold ETFs are liquid, meaning investors can easily convert shares into cash and vice-versa.

Turning to GLD and GLDM, investors should know that these ETFs have virtually identical performance results, dating back over the last five years. GLDM has slightly outperformed GLD, with a total return of 145.8% versus 142.5 for GLD. On a compound annual growth rate (CAGR) basis, GLDM has posted a 19.7% CAGR versus a 19.4% CAGR for GLD. In short, GLDM is a slightly better choice, thanks in large part to its cheaper expense ratio (0.10% vs. 0.40% for GLD). Granted, GLD is the larger ETF, with over $151 billion in assets under management, meaning that investors with concerns over liquidity may still favor GLD. However, with more than $26 billion in AUM itself, GLDM has ample liquidity — meaning that gold investors who are cost-conscious should strongly consider GLDM over GLD.

ETF: Exchange-traded fund that trades on stock exchanges and typically tracks an index or asset.
Expense ratio: Annual fund fee, expressed as a percentage of assets, deducted from returns to cover operating costs.
AUM: Assets under management; the total market value of all assets held by the fund.
Gold bullion: Physical gold in bars or ingots, valued primarily by weight and purity, not collectability.
Beta: Measure of an investment’s volatility relative to a benchmark index, often the S&P 500.
Max drawdown: The largest peak-to-trough decline in an investment’s value over a specific period.
Total return: Investment performance including price changes plus any income, assuming all payouts are reinvested.
Liquidity: How easily and quickly an asset or fund can be bought or sold without moving its price.
Leverage: Using borrowed money or derivatives to increase exposure, which can amplify gains and losses.
Derivatives: Financial contracts whose value is based on an underlying asset, index, or rate, such as futures or options.
ESG overlays: Environmental, social, and governance screens or rules applied to include or exclude certain investments.
Tracking: How closely a fund’s performance matches the performance of its target index or underlying asset.

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Jake Lerch has positions in SPDR Gold Shares. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Gold ETFs: GLD is the Largest, But GLDM Provides Cheaper Gold Exposure was originally published by The Motley Fool