In March 2024, BMO Global Asset Management launched two new ETFs – (i) BMO Gold Bullion (ZGLD), and (ii) BMO Gold Bullion Hedged to CAD (ZGLH).
Both these ETFs enable investors to receive exposure to the price of gold bullion and diversify their portfolios into physical commodities.
As an asset, gold offers several long-term investment benefits.
- Historically, gold has acted as a sound hedge and store of value which helps investors preserve their capital through rising inflation.
- Due to its tangible, physical nature, gold becomes a safe haven during periods of volatility, uncertainty or downturns in the stock markets.
In comparison to buying physical gold, there are several advantages to buying an ETF that tracks the market price of the underlying commodity.
1. Avoiding the Cost (and hassle) of Storage
Buying a gold ETF allows you to gain the upside of gold prices without having to pay for the expenses involved with storing gold physically.
With the BMO ETFs, the fund manager (i.e., BMO Global Asset Management) buys the gold on your behalf and stores it in a BMO vault that is professionally audited periodically.
Alternatively, if you were to buy physical gold to use as jewelry or as an investment, the responsibility of storing it in a secure place lies on you as the buyer.
Many people opt to open safe deposit boxes at the banks or keep a safe in their own homes.
Both of these options involve you as the buyer undertaking an additional expense, and can be avoided by buying the ETF instead.
2. Simplicity of Trading
To sell gold bullion, you need to find a person who is willing and able to exchange cash for your asset.
To buy bullion, you need to conduct the appropriate due diligence to ensure you are purchasing a pure product from a verified, credible seller.
On the other hand, you can trade a gold ETF from the comfort of your home with the mobile app of your brokerage platform.
3. Low-commission or No-commission Trading
Many brokerage platforms allow you to trade ETFs entirely on a commission-free basis.
In general, ETFs also come with lower fees than traditional mutual funds as they are not actively managed by a specialized team.
On the flip side, investors often find that there is not quite as much transparency in the pricing of physical gold.
ZGLD – BMO Gold Bullion ETF
The ZGLD ETF (traded on the TSX) provides investors with a return that tracks the price performance of gold bullion, net of the fees and expenses associated with operating the ETF.
Holdings: ZGLD invests exclusively in long-term unencumbered (i.e., free of any credit claims or liens) gold bullion in 400 troy ounce international bar sizes.
All physical gold is held within a BMO vault and subject to periodic audits.
Risk Rating: Medium – while gold is a good store of value over the long term, prices can be volatile in the short term.
Management Expense Ratio: Estimated to be 0.23% (ETFs with less than one year of operating history only provide MER estimates as a full year of audited financial statements is yet to be received).
This is primarily comprised of the maximum annual management fee estimated to be 0.20%.
Net Assets: C$15.64M as of July 19, 2024.
Best for: ZGLD is ideal for investors that are seeking to use gold as a diversification tool in their portfolio and have a positive long-term outlook on gold’s ability to hold its value.
The ETF is passively-managed and as such, does not speculate on short-term changes in the price of gold.
ZGLH – BMO Gold Bullion Hedged to CAD ETF
The ZGLH ETF (traded on the TSX) provides investors with a return that tracks the price performance of gold bullion, net of fees and expenses.
The currency hedging feature also allows for investors to purchase gold as an asset without having to worry about currency fluctuations of the Canadian Dollar.
Holdings: ZGLH invests exclusively in long-term unencumbered gold bullion in 400 troy ounce international bar sizes.
All physical gold is held within a BMO vault and subject to periodic audits.
Risk Rating: Medium – while gold is a good store of value over the long term, prices can be volatile in the short term.
There is also an added component of the CAD’s fluctuation versus international currencies.
Management Expense Ratio: Estimated to be 0.23% (ETFs with less than one year of operating history only provide MER estimates as a full year of audited financial statements is yet to be received).
This is primarily comprised of the maximum annual management fee estimated to be 0.20%.
Net Assets: C$2.77M as of July 19, 2024.
Best for: Similar to ZGLD, the ZGLH ETF is ideal for investors that are seeking to use gold as a diversification tool in their portfolio.
An additional consideration is the currency aspect.
If you expect that the CAD will appreciate relative to other currencies in the same period, the CAD-hedged version of the ETF (i.e., ZGLH) is the more attractive buy versus the non-hedged version (i.e., ZGLD).
