By ETF Heat Map Team

Despite the likelihood of an increase in the cost of borrowing that is being experienced in the US, investors’ interest in Gold is still high. According to information compiled by Bloomberg, gold backed ETF’s are on the rise for a third quarter consecutively and this is the longest sequence since 2012. This despite the challenges that come with the possibility of an increase in interest rates that is expected this year. As we speak, investors have already injected over $10 billion into the SPDR Gold Shares (GLD) since the year began to date. As such, we preview certain commodity related ETFS, specifically Gold ETFs that are available in the ETF Heat Map screener and database:

  • IAU – iShares Gold Trust ETF
  • GLD – SPDR Gold Shares ETF
  • GDX – VanEck Vectors Gold Miners ETF

GDX, a VanEck product, seeks to track the overall performance of companies involved in the gold mining industry. Historically, this is a sector that has provided a hedge against extreme volatility in general financial markets. The top holdings include Newmont Mining, Barrick Gold, and Goldcorp, which comprise approximately 25% of the overall portfolio. The YTD return has been approximately 85%, with management fees of approximately 0.52%.

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gdx

David Mazza, State Street Global Advisors’ head of ETF and mutual-fund research, believes that investors still have a chance to obtain gold products (like ETFs, notes etc.) despite the hike expectations which is currently triggering a short term sell off. Furthermore, he believes there is a minimal chance of Gold products ending up in a bear market due to extremely low rate increases predictions.

A large number of investors have joined the commodity market and continue to join this year as inflows into commodity investors reach some of the highest levels since the financial crisis. This has been attributed to the quantitative easing that has made investment in real assets (infrastructure, real estate, gold etc. ) more favorable from a risk / reward perspective.

On the other hand, Kevin Norrish, the head of commodity research in Barclays  believes that in the current year, a larger percentage of the demand for commodities has been strategic. The only way therefore to retain investors and prevent further outflows may be by having the asset class generate higher returns by the end of the second half, and Mr. Norrish believes this is less likely to happen.

There is an ongoing shift in the type of investors participating in the commodities market. In the past, the sector was seen as a long term investment channel and this is when long term investors would risk putting in their money in form of commodity indexes swaps. After the global crisis however, most of them became disillusioned as a result of the sector underperforming and starting to move in correlation with the market instead of providing unique diversification and hedging benefits. As such, many market participants in this space, have become opportunistic and short term in nature, seeking returns.