Gold ETCs prosper as iShares and Invesco products power through $10bn asset mark

Apr 9th, 2020 | By | Category: Commodities

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Physical gold ETCs from BlackRock and Invesco have broken through the $10 billion assets under management mark in recent days on the back of record inflows and strong market performance.

Gold ETCs prosper as iShares and Invesco products power through $10bn asset mark

Gold ETCs from BlackRock and Invesco have broken through the $10 billion assets under management mark in recent days.

As of London market close on 8 April, the iShares Physical Gold ETC (IGLN LN) had pulled in net new assets of $2.8bn year to date, while the Invesco Physical Gold ETC (SGLD LN) had gathered $2.3bn.

When combined with the 8% YTD return on gold, the two products have increased by $3.5bn and $2.9bn respectively, in terms of the value of assets held.

March was a bumper month for gold ETCs, driven by investors’ search for safe-haven assets amid ongoing market volatility caused by the Covid-19 coronavirus pandemic.

The iShares product pulled in $1.4bn in net new flows while the Invesco equivalent raised an even heftier $1.7bn, more than any other exchange-traded product in Europe. Assets under management in the pair now stand at $10.5bn and $10.1bn respectively.

Both products deliver the performance of the gold price, as referenced by the London Bullion Market Association’s London Gold PM Auction Price, less annual fees, with client investment used to purchase physical, fully allocated gold bars which are held in the London vaults of J.P. Morgan Chase Bank.

They are among the best value physical gold products in Europe, as measured by total cost of ownership, with total expense ratios (TERs) of 0.19% per annum and low bid-offer spreads.

Another sizable gold ETC in Europe is the Xetra Gold (4GLD GR) offered by Deutsche Börse Commodities, a joint venture between Deutsche Börse and several banking partners. The Xetra Gold crossed $10bn AUM at the start of the year, briefly dipped below that threshold at the height of the Covid-19 liquidity crisis, and has since powered back to over $11.2bn. It is relatively pricey, however, with an expense ratio of 0.36%.

The ETC with the cheapest headline TER is the $2.5bn Amundi Physical Gold ETC (GOLD FP) at 0.15%. But, having launched less than a year ago, it hasn’t yet consistently demonstrated the same level of liquidity. Nonetheless, it too has been enjoying impressive inflows ($1.3bn YTD) and has more than doubled in size (up 129%) this year, making it the most successful gold ETC in 2020 by percentage asset growth.

For investors anticipating holding gold for the long term, the lower TER could ultimately make it a more cost-efficient option.

Another product doing well in the turbulence and increasingly on investor radars is the Royal Mint Physical Gold ETC (RMAU LN) from white-label issuer HANetf in partnership with the Royal Mint. At 0.22% it is a little more expensive than the iShares, Invesco and Amundi products and is presently less liquid, but it appears to be appealing to those investors seeking 100% responsibly sourced gold – a concern among investors committed to maintaining high ESG standards throughout their entire portfolio. AUM in this product is up 45% since its inception on 12 February 2020.

One gold ETC that isn’t shining quite so brightly is the WisdomTree Physical Gold ETC (PHAU LN). It has added only $11m YTD and has fallen to third place in the AUM ranking among European domiciled gold ETCs. It was once the largest, peaking at $8.9bn in October 2011, but a reluctance from the product’s issuer, WisdomTree, to lower the TER in line with rivals – it comes with a fee of 0.39% – has resulted in a loss of market share. Nevertheless, assets are up $561m YTD and trade volumes remain healthy.

Commenting on the success of gold ETCs, Chris Mellor, Head of ETF Equity and Commodity Product Management at Invesco, said: “Investors are using ETCs to allocate to gold due to their liquidity and low costs – even at a time of abnormal market stress, record spreads, and when traditional physical trading routes and infrastructures are being restricted or even shut. Indeed, ETCs have weathered the quarter extremely well and delivered exceptional value for investors at a time of profound volatility and market disruption.

“Gold has been shown to be a safer store of value during the recent market turmoil than most other assets, and demand from investors has continued to grow. We expect this demand to continue in the foreseeable future as investors seek to capitalise on the benefits of ETCs to rebalance portfolios and reflect the market environment.”

(Notes: Invesco Physical Gold ETC was previously called Source Physical Gold ETC; WisdomTree Physical Gold ETC was previously called ETFS Physical Gold.)

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