Hello! This week’s ETF Wrap shines the light on gold ETFs, which are outperforming the S&P 500 so far this year. Will gold rally when the Fed eventually pauses its rate hikes?
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There’s been a bit of a gold rush lately.
Investors added almost $521 million into SPDR Gold Shares
over the past week through Wednesday, according to FactSet data. And on March 13, investors poured $709 million into the fund, the biggest daily inflows since April 2022, FactSet data show.
The inflows followed the March 12 joint statement by the Federal Reserve, Treasury Department and Federal Deposit Insurance Corp. on the emergency government action taken to help strengthen confidence in the banking system after regional bank failures in the U.S.
“This is a flight to quality as a result of the uncertainty tied to the banking crisis and the lack of clarity about when the Federal Reserve will stop raising interest rates,” said Todd Rosenbluth, head of research at VettaFi, in a phone interview. “Gold
has always been a safe haven for investors in times of uncertainty, but now it’s starting to see a pickup in flows,” he said, with SPDR Gold Shares in particular seeing “strong inflows in the past week.”
Shares of Gold ETFs are outperforming the S&P 500
so far this year, after faring far better than stocks and bonds in 2022 as the Fed was rapidly hiking rates to combat still high inflation.
SPDR Gold Shares rose a sharp 1.7% on Wednesday, while U.S. stocks sold off after the Fed announced its interest-rate decision and Chair Jerome Powell held a news conference. The ETF was up more than 1% in Thursday afternoon trading, bringing its gain so far this year to more than 9%, according to FactSet data, at last check.
The fund is the biggest gold ETF, with around $58 billion of assets under management, followed by the iShares Gold Trust
at around $28 billion, according to Rosenbluth. Both funds invest in physical gold, he said.
Shares of the iShares Gold Trust were also up Thursday afternoon, with year-to-date gains of more than 9%, according to FactSet data, at last check.
On the flows front, SPDR Gold Shares has seen $436 million of inflows this year through Wednesday, compared with around $2.5 billion of outflows in 2022, according to FactSet.
As for its performance last year, the fund lost just 0.8%. By contrast, shares of the SPDR S&P 500 ETF Trust
tanked 19.5% in 2022 — its worst year since 2008 — while the iShares Core U.S. Aggregate Bond ETF
saw a loss of 13% on a total return basis.
So far this year, the SPDR S&P 500 ETF Trust was up around 3% based on Thursday afternoon trading, while the iShares Core U.S. Aggregate Bond ETF had a total return of more than 3% through Wednesday.
Meanwhile, questions remain about how the recent strain seen in the banking system will impact the broader economy, and some investors still believe there could be interest rate cuts in 2023, said Rosenbluth. Fed fund futures on Thursday afternoon showed traders expect rate cuts this year, according to the CME FedWatch Tool.
The Fed announced Wednesday that it hiked its benchmark rate by a quarter of a percentage to a target range of 4.75% to 5%, and projected potentially just one more rate hike in 2023. “Rate cuts are not in our base case,” Powell told reporters after the Federal Open Market Committee announced its policy decision.
Read: As Fed keeps hiking rates, stocks probably set up for ‘correction,’ says SoFi’s Liz Young
“Historically, we’ve seen Fed rate pauses actually kick off a bullish rally for gold,” said Robert Minter, director of investment strategy for ETFs at abrdn, in a phone interview. For example, gold rallied when the Fed paused in 2000, 2006 and 2008, he said.
The abrdn Physical Gold Shares ETF
which has around $3 billion of assets under management, was also up more than 9% so far this year based on Thursday afternoon trading, according to FactSet data.
The recent pickup in flows into the biggest gold ETF, SPDR Gold Shares, stands out and feels “more tactical as a result of the recent market environment,” according to Rosenbluth. While iShares Gold Trust attracted more than $122 million of inflows in the week through Wednesday, the SPDR Gold MiniShares Trust
saw small outflows over the same period, FactSet data show.
SPDR Gold MiniShares Trust is much smaller than SPDR Gold Shares and less expensive, making it appealing to longer-term strategic investors, according to Rosenbluth. The fund, which has about $6 billion of assets, has an expense ratio of 0.10%, compared with 0.40% for the larger SPDR Gold Shares.
The cheaper SPDR Gold MiniShares Trust may be used as more of a “strategic allocation” for people building a broad portfolio and “adding in gold as a slice,” said Rosenbluth. But active traders making tactical bets might not mind the higher cost of SPDR Gold Shares because it provides more “liquidity,” making it easier to trade, he said.
“If you’re looking to trade, it may make more sense to have GLD because it trades more,” said Rosenbluth, referring to the ticker of the fund. Its higher cost may be “negligible” for traders making a short-term bet over a span of say, six weeks, as the expense ratio represents the cost over a year, he said.
As usual, here’s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.
VanEck Junior Gold Miners ETF
iShares Silver Trust
abrdn Physical Silver Shares ETF
Global X Silver Miners ETF
ETFMG Prime Junior Silver Miners ETF
Source: FactSet data through Wednesday, March 22. Excludes ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater.
…and the bad
United States Natural Gas Fund LP
SPDR S&P Biotech ETF
Fidelity MSCI Real Estate Index ETF
JPMorgan BetaBuilders MSCI U.S. REIT ETF
Real Estate Select Sector SPDR Fund
Roundhill Investments said in March 21 note that it launched the Roundhill BIG Bank ETF
a fund that provides exposure to six U.S. banks that are “too big to fail.” The fund’s “concentrated” basket of stocks includes JPMorgan Chase & Co.
Bank of America Corp.
Wells Fargo & Co.
Goldman Sachs Group Inc.
and Citigroup Inc.
according to Roundhill.
Sprott Asset Management announced March 22 the launch of the Sprott Nickel Miners ETF
a fund focused on “nickel mining companies that are providing a critical mineral necessary for the clean energy transition.”
Bitwise Asset Management announced March 21 that it launched the Bitwise Bitcoin Strategy Optimum Roll ETF
which provides exposure to the cryptocurrency through the futures market. The strategy is designed to minimize “pricing inefficiencies that can emerge in bitcoin-linked ETFs focused on front-month or near-month futures contracts,” Bitwise said.
AllianceBernstein announced on March 22 three new active equity ETFs, including the AB U.S. Low Volatility Equity ETF
the AB U.S. High Dividend ETF
and the AB Disruptors ETF
Citadel Securities will be the “lead market maker” on the funds, AllianceBernstein said.
Weekly ETF reads
QQQ ETF outperforms S&P 500 after Fed decision (MarketWatch)
The Pros Fail to Meet the Moment With Bond ETFs (Bloomberg)
Investors Bid Up Treasury ETFs After Quarter-Point Rate Hike (ETF.com)
21Shares to close six crypto ETFs (Financial Times)
Ark’s Cathie Wood Sees Silver Lining in $2 Billion Loss (Bloomberg)