Thursday, 8 March 2012

Source physical gold ETF SGLD vs PHAU - cheaper, growing fast

Today I tried a bit of research on the size of gold ETFs traded on the London Stock Exchange and on the spreads investors are likely to see (with a helping hand from Index Universe).

The process reveald a few more physical gold ETFs than I expected but most of them were pretty small compared to PHAU, GBS and Source (SGLD), although I couldn't always find their assets under management.


London Stock Exchange data on ETF (or exchange traded products if you prefer) trading between 27 February - 2 March 2012 showed that  ETFS Physical Gold ETF alone made up 24% of all the turnover of all ETF or exchange traded products on the London Stock Exchange.

It did this in just 269 individual trades (8.81% of all ETF trades on the LSE that week) with each trade averaging £137,996 in size - achieving a turnover of £37 million. The time weighted spread - the difference between the buying and selling price of the shares -  was 8 basis points or 0.08%, pretty low.


In comparison ETF Securities' sterling denominated PHGP physical gold ETF made up a much smaller percentage of the total ETF turnover on the LSE: 5.4% or £8.3 million. But despite this there were more trades, 297 of them or 9.73% of all ETF/ETP trades on the London Stocke Exchange.

The time weighted spread for these was 15 basis points, just under twice as high as that of PHAU.

But, one week earlier - from 20-24 February 2012 - PHAU saw even more action and its £210 million turnover made up 33% of total ETF turnover on LSE. In the same week PHGP saw turnover of £16.9 million (2.7% of all ETF turnover on the LSE).

Despite this huge difference in turnover PHAU and PHGP saw similar numbers of trades 917 and 860 respectively (9.7% and 8.9% of all ETF trades on LSE). The difference in spreads was three-fold: 5 basis points (0.05%) between buying and selling price for PHAU and 16 (0.16%) for PHGP.

Considering that they both charge 0.39% per year in management fees the extra cost of PHGP in terms of spreads doesn't look quite so insignificant. Especially as the fastest growing Physical Gold ETF in 2011 - Source Physical Gold (SGLD) - is growing fast because it charges just 0.29% management fee. In both weeks (20-24 February and 27 Feb-2 March) it had time weighted spreads of 9 basis points or 0.09%.

So it's cheaper to own and to buy than PHGP and PHAU. Today I saw that one of its trades (an 'ordinary trade' which means it was off exchange and does not show as a buy or sell - just that this many shares changed hands) was £48 million. But like I said I don't know if that's as big as it appears to be in the context of weekly turnover.

Even without this £48 million exchange being included in its 'buy' trades SGLD saw buys of more than  £52 million compared to £1.2 million in sells. While PHAU saw more selling (£11 million) than buying (£3.8 million).

Is this just down to cost differences? Here's how the breakdown of physical gold ETF market share has changed with the data I could find - so not all physical gold ETFs are included.

 Source trading on  Thursday:

PHAU trading on Thursday:

Does this make any difference to me and my tiny PHAU holding? I'll have to work it out. 

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