Tuesday, 19 June 2012

Another identity crisis at gold ETF Investor - fund or ETF?

This blog has had an identity crisis before.

There was another one last week: why do I invest in a fund rather than an ETF when it comes to gold mining companies? I only asked myself this question after seeing a piece on gold miner ETFs in Moneyweek - the inconsistency hadn't occurred to me before!



(The ETFs discussed  in Moneyweek were iShares SPGP,  ETF Exchange's AUCO ($), AUCP (£) and RBS's GOLB - the last of these were synthetic/swap-based and all of them track indices. An investor like me has to know such things as whether the mining firms in the index hedge their gold - in which case they won't benefit so much from a rise in gold price. So, one reason why I don't fancy the gold miner ETFs at the moment is that a certain amount of knowledge is needed about the construction of an index, the construction of the product, the industry, the way companies operate that I do not have. That, though, is a retrospectively applied reason.)

I think that actual reason I haven't invested in them is simpler:

I invest in the Black Rock Gold and General fund because I can make a number of small investments that cost -as far as I can tell - 'nothing'. There are higher management charges but they appear to be less that what it would cost to make these small investments into an ETF. There are disadvantages in funds too, a big one being that I can only buy and sell once a day and at an unknown price.


Since I started this blog I have invested in the BlackRock fund seven times.

The first investment was £1000 on 23 September 2011 when the unit price was 1,608p and then in lots of £250 at irregular dates after that:

24/11/2011 - unit price 1,503p
25/11/2011 - unit price 1,484p
23/12/2011 - unit price 1,441p  
21/03/2012 - unit price 1,438p
05/04/2012 - unit price 1,318p
11/05/2012 - unit price 1,200p


The total investment in the fund is now £2,500 and it would have cost me nearly £80 to have done this using ETFs. But this low cost has led me to owning more than I meant to. I have generally bought units when I couldn't make my mind up about spending £11.95 buying more physical gold ETF shares.

The investment was down 12.5% while the ETFs were level, although there's a bad history not shown there!



However, this doubt has raised a more fundamental question. Why don't small time investors like me have access to gold mutual funds (which invest in gold ETFs) which would allow us to invest more frequently and in smaller lots? They have gold mutual funds in India. Is there something wrong with them?

I got the pic below from OneMint which provided an interesting review of an indian gold mutual fund called SBI Gold Fund.


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