Is This Brokerage About to Create the Holy Grail of Gold ETFs?

In terms of popularity, ETFs are one financial instrument that have exploded over the past several years. They’re great for small investors, because they cover a wide range of securities in a single product, which in some cases can really help reduce volatility and risk.

There’s an ETF for practically everything now. From oil and transportation to healthcare and technology, there’s almost no portion of the market investors can’t get exposure to through an ETF. Investors can even get exposure to precious metals through ETFs like GLD and GDX.

In the world of ETFs, one company’s name stands out in particular, and that’s Vanguard. Vanguard’s low expense ratios make its offering of ETFs especially appealing. However, the company has yet to release and ETF product that tracks the gold market.

That doesn’t mean we couldn’t see one soon though. Rumors are flying that Vanguard might have plans to release a new gold ETF that could be one of the best available to investors yet. Why would Vanguard make the leap?

The launch of a Vanguard gold ETF appears to be an easy extension of Vanguard’s approach in the ETF business to go after large buckets of existing ETF assets with newly launched low cost options. Vanguard has executed this strategy in the past in market segments like including the dividend income, emerging markets and broad based domestic ETF space. A great example is Vanguard’s MSCI Emerging Market ETF (NYSEARCA:VWO). It launched in March of 2005 and has an expense ratio of 20bps. VWO targeted the iShares MSCI Emerging Markets Index Fund (NYSEARCA:EEM) which launched in 2003 and has an expense ratio of 67bps. Both ETFs track the same index and today VWO has surpassed EEM as the largest emerging markets ETF. VWO holds around $60 billion in assets in comparison to EEM which holds around $35 billion.

So as gold ETF assets continue to surge – physical gold ETFs assets are currently close to $90 billion – a Vanguard gold ETF seems more likely. Here’s a list from GoldETFs.biz of the physical gold ETFs currently available in the U.S. ranked by assets.

A Vanguard gold ETF would compete with four other funds. Data Source: GoldETFs.biz ETF List

Already the iShares Gold Trust (NYSEARCA:IAU) has taken a low cost approach to compete with the world’s largest gold ETF, the SPDR Gold Trust (NYSEARCA:GLD). With an expense ratio of 25bps, IAU is over 30% less expensive than GLD. For investors with the low cost Vanguard mentality, IAU is clearly the best choice in the marketplace today. Here’s a breakdown of the funds above and their expense ratios.

Vanguard has a loyal following of satisfied investors, and it could really disrupt the retail market for precious metal ETFs should the decision to create a new gold ETF moves forward.

Would you consider investing in a Vanguard gold ETF? What questions would you have about it? Leave us your thoughts in the comments.

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