The Best Gold ETFs In Canada for 2022
When the stock market is falling, investors tend to rush toward gold. For this reason and more, gold makes for a solid hedge against future downturns in the stock market. But gold can be highly volatile, so you need to limit your exposure, regardless of how aggressive an investor you are.
How to Invest In Gold In Canada
There are several ways Canadians can invest in gold, including buying physical gold bars, gold stocks, or gold ETFs (exchange-traded funds). In this article, we’ll explore the latter.
How Do Gold ETFs Work?
Gold ETFs are different from your typical broad market ETF in that they only invest in one industry sector: gold. This narrow focus makes gold ETFs much more volatile than funds that track a broad index, like the S&P 500. With that in mind, let’s take a look at the best gold ETFs in Canada for 2022.
1. iShares S&P/TSX Global Gold Index ETF
This long-standing iShares ETF is on many best gold ETFs lists. For starters, it’s huge, with over 1.6 billion in Assets Under Management (AUM). It’s by far the largest of the gold ETFs on this list. But there are other things to like about this fund aside from the size.
For starters, it has a very low MER for a precious metals ETF, at only .61%. It’s also diversified globally. While Canadian companies make up over 60% of the holdings, there is exposure to the US, South Africa, and Peru.
If you’re looking for a solid dividend, you’re better off with the next two funds on our list. But who’s really looking for dividends when they invest in gold. What this fund has delivered is solid capital growth. While past performance is no indicator of future returns, average annual returns are 7.74% for the past 5 years.
Inception Date: Mar 23, 2001
AUM: $1.093 Billion (June 2022)
What We Like: Low MER, global diversification, history of capital growth.
2. Horizons Gold Yield ETF
In many ways, the Horizons Gold Yield ETF is very different from its iShares counterpart. For starters, it’s much smaller, with AUM just a shade over $74 million. Not only that, it’s an actively traded ETF that doesn’t invest in gold stocks at all.
Instead, it holds SPDR Gold Shares, the largest physically-backed gold exchange-traded fund (ETF) in the world. While this fund’s capital growth has not equalled the performance of XGD, it does boast a superior dividend yield.
Inception Date: December 17, 2010
AUM: $74 Million (June 2022)
What We Like: Dividend yield (distributed monthly)
3. BMO Equal Weight Global Gold Index ETF
One of two gold ETFs from this big Canadian bank, the BMO Equal Weight Global Gold Index ETF has over 32 underlying holdings spread across Canada, the US, Africa, and South America, making it a truly global fund. Unlike the aforementioned Horizons ETF, it doesn’t pay a dividend.
The fund tracks the Solactive Equal Weight Global Gold Index. What’s interesting is that each security in the index is equally weighted. This lowers the level of security-specific risk. The 5-year average annual return is 6.61%.
Inception Date: November 14, 2012
AUM: 40.79 Million (June 2022)
What We Like: Low MER, global diversification
4. Horizons Gold Producer Equity Covered Call ETF
June 24, 2022 – Fund update, as per Horizons ETFs website:
“Effective June 24, 2022, the investment objectives of the Horizons Gold Producer Equity Covered Call ETF (“GLCC”) (formerly Horizons Enhanced Income Gold Producers ETF (“HEP”)) were changed following receipt of the required unitholder and regulatory approvals. The ETF will begin to trade under its new fund name and ticker symbol on June 27, 2022.”
The second entry on our list from Horizons is the Gold Producer Equity Covered Call ETF. It pays a high dividend yield (monthly distributions). The 12-month trailing yield is currently 7.73%. The fund managers use covered call options on the portfolio securities to reduce the fund’s downside risk.
The fund is not purely a gold fund; it holds silver-based securities also. One knock against this fund is the high MER, of .79%, due largely to its active management. This may not appeal to typical ETF investors, who tend to be very price-conscious. There is some global diversification, but not to the extent of the iShares ETF.
Symbol: GLCC (Formerly HEP)
Date of Inception: April 11, 2011
AUM: $136 Million
What We Like: High dividend yield, monthly distribution.
5. Royal Canadian Mint – Canadian Gold Reserves ETF
The number five fund on our list is actually considered an ETR rather than an ETF. ETR stands for Exchange Traded Receipt. In essence, the Royal Canadian Mint is backing this fund with physical gold, and your ‘receipt’ represents the slice that belongs to you. In theory, you could convert your ETR shares for gold, but with a minimum redemption, the amount would run in the hundreds of thousands of dollars.
Date of Inception: Nov 29, 2011
AUM: $470 million
What We Like: Backed by physical gold, rather than gold securities.
6. CI First Asset Gold+ Giants Covered Call ETF
If you’re interested in buying North American gold stocks, the TSX-listed CI First Asset Gold+ Giants Covered Call ETF may be the way to go.
According to the fund’s ETF Facts document, the funds objective provides “the opportunity for capital appreciation by investing on an equal weight basis in a portfolio of securities of the 15 largest Gold and Precious Metals Companies measured by market capitalization listed on a North American stock exchange that has liquid options markets”.
The fund’s top10 holdings include familiar names, like Yamana Gold, Kinross, and Barrick Gold Corp. The lack of global diversification does increase the fund’s volatility, and the MER is on the higher end of this list due to it being an actively traded fund.
Date of Inception: June 1, 2011
Management Fee: .71%
AUM: $200 Million, June 2022
What We Like: A truly North American gold ETF, quarterly distributions.
7. Harvest Global Gold Giants Index ETF
Unlike the previous ETF on this list, the Harvest Global Gold Giants is a passively managed ETF. It tracks the Solactive Gold Giants Index TR, a collection of the world’s 20 largest gold stocks. The Assets Under Management is very small, at $9.3 million, but this is because the fund was new in 2019.
The geographic allocation includes Canada (60%), Australia (19%), the UK (11%), and the United States (9%). Even though the fund is a relative newcomer, it stands out on our list as a straightforward, passively managed global index fund.
Date of Inception: January 10, 2019
Management Fee: .40%
AUM: $3.8 Million
What We Like: Passive management, benchmark tracks the world’s largest gold stocks.
3. BMO Junior Gold Index ETF
All Gold ETFs are risky investments, but if you want to spice up your portfolio with even more volatility, consider the BMOs Junior Gold ETF (ZJD). ZJD tracks the Dow Jones North American Select Junior Gold Index, which contains small-cap gold exploration, development and mining stocks, in fact, over 80% of the funds holdings are junior gold stocks. All of this means that when gold is on the rise, ZJD will likely outperform other gold securities, but when the opposite occurs, expect losses to be steep.
AUM: $74.9 Million (June 2022)
What We Like: Low MER, global diversification
Is It Worth It to Buy Gold Bullion?
There you have it, my list of the 8 best gold ETFs in Canada for 2022. Now, you may be wondering – many investors like the idea of owning an actual gold bar, of being able to hold it in their hands. While that is, in all likelihood, a nice feeling, there are drawbacks to purchasing physical gold bullion.
It can be expensive if you have to pay shipping costs when you buy or sell it. That may be worthwhile for a large gold bar, but the average investor can’t afford to own that much gold.
Gold bullion is not as liquid as a gold stock or ETF. Physical gold bullion must be safely stored, and it can’t be bought and sold within seconds in a self-directed trading account. Lastly, gold bullion won’t produce regular cash flow for an investor, in the form of a dividend.
Alternatives to Buying Gold ETFs
If you’re interested in gold as an investment, there are alternatives to buying gold ETFs in Canada. One option is to purchase gold bullion via Vaulted, which is a fintech app for your smartphone. The beauty of Vaulted is that you don’t have to store the gold yourself (although that is an option); it’s stored for you by the Canadian Mint.
Once you download the Vaulted app, it only takes a few minutes to open your account. From there, fund your account with an electronic transfer from your primary bank chequing account, and you’re ready to trade. Vaulted charges a .40% annual maintenance fee and a spread of no more than 1.8% per trade.
How Can I Buy a Gold ETF?
The easiest and cheapest way to purchase gold ETFs is through an online broker. The lowest-cost brokers for ETFs are Questrade and Wealthsimple Trade. Both companies offer commission-free ETF purchases. This way, you can save up to $9.95 per trade, which is what you’ll pay with the Big Bank discount brokers.
Before you buy Canadian gold ETFs, however, remember this: Gold is considered to be a high-risk investment, even when purchased in an ETF form. Your investment could drop in value, and it should be considered a long-term holding in a well-diversified investment portfolio. You should also limit your exposure to gold. Anything over 10% weighting in a portfolio could significantly increase your level of risk. And, as always, consult with an investment professional before buying any market investment.