If you want to invest in gold without lugging actual gold bars around, what should you buy?
Gold is well known as a time-tested investment and a potential hedge against the dollar and inflation. Gold has historically been a store of value since it is a rare and finite resource.
If you are interested in gold producers, ETFs are one option to consider to gain easy access to gold. Find out more in this iShares XGD ETF Review.
Commodity Exchange-Traded Fund
BlackRock iShares XGD is an Exchange-Traded Fund (ETF) that provides you with exposure to the largest North American gold producers trading on the TSX.
- High liquidity
- Invests in large producers
- Easy access to gold investments
- High volatility
- High-risk investment
XGD is a gold index ETF offered by Blackrock on the Canadian stock exchange TSE. The commodity investment tracks the S&P/TSX Global Gold Index.
XGD focuses primarily on gold producers, not gold itself, with a global perspective.
XGD.TO is currently trading at close to $15.27.
XGD Key Facts
As of June 30, 2022:
- Ticker Symbol: XGD.TO
- Exchange: Toronto Stock Exchange
- Assets Under Management: $1 Billion
- MER: 0.61%
- 12-Month Trailing Yield: 1.57%
- Currency Traded: CAD
- Eligible Accounts: Most registered (TFSA, RRSP, etc) and non-registered available
The current management fee is 0.55%. The current Management Expense Ratio is 0.61%. While it may seem high, these fees are comparable to similar sector ETFs.
iShares XGD’s dividend yield as of July 18, 2022:
- 12-month trailing yield: 1.67%
- Distribution yield: 3.70%
- Dividend schedule: Semi-Annual
Here is the growth of a hypothetical $10,000 in iShares XGD since inception:
| 1y | 3y | 5y | 10y | Incept. | |
|---|---|---|---|---|---|
| Average Annual Return (%) | -9.66 | 6.96 | 6.87 | -0.83 | 4.75 |
| Benchmark (%) | -9.16 | 7.66 | 7.56 | -0.23 | 5.34 |
XGD provides exposure to producers of gold and relevant products at a global level.
XGD ETF’s asset allocation
The fund is nearly entirely invested in equities, with a majority of its focus on Canadian equities and smaller interests in the U.S and international equities.
As of July 18, 2022:
| Asset Class | Investment | Category |
|---|---|---|
| Canadian Equity | 60.31 | 63.95 |
| U.S. Equity | 27.26 | 14.04 |
| International Equity | 12.34 | 17.46 |
| Fixed Income | 0.00 | 0.09 |
| Other | 0.00 | 3.29 |
| Cash | 0.09 | 2.60 |
XGD ETF’s top holdings
As of July 19, 2022, Newmont is its most significant holding at 22.03%. It is followed closely by Barrick Gold Corp. at 14.48%. Franco Nevada Corp. is its third most significant holding at 12.04%
Newmont is one of the world’s largest gold miners, with operations worldwide. They are known for being the only gold company on the S&P 500.
Barrick Gold Corp produces gold and copper in 13 countries. They were the largest gold mining company in the world until Newmont bought Goldcorp in 2019. Their current CEO wishes to exchange their stock on the S&P 500 in the near future.
Franco Nevada Corp is a Canada-based company that is traded on the TSE and the NYSE. Newmont actually used to own Franco Nevada from 2002 to 2007.
| Ticker | Name | Weight (%) |
|---|---|---|
| NEM | NEWMONT | 22.03 |
| ABX | BARRICK GOLD CORP | 14.48 |
| FNV | FRANCO NEVADA CORP | 12.04 |
| AEM | AGNICO EAGLE MINES LTD | 9.93 |
| WPM | WHEATON PRECIOUS METALS CORP | 7.78 |
| GFI | GOLD FIELDS ADR REPRESENTING LTD | 4.06 |
| RGLD | ROYAL GOLD INC | 3.44 |
| AU | ANGLOGOLD ASHANTI ADR REPTG LTD | 3.00 |
| YRI | YAMANA GOLD INC | 2.34 |
| K | KINROSS GOLD CORP | 2.16 |
XGD’s holdings are composed of stocks in the Materials sector:
| Sectors | Investment % |
|---|---|
| Basic Materials | 100.00 |
| Consumer Cyclical | 0.00 |
| Financial Services | 0.00 |
| Real Estate | 0.00 |
| Communication Services | 0.00 |
| Energy | 0.00 |
| Industrials | 0.00 |
| Technology | 0.00 |
| Consumer Defensive | 0.00 |
| Healthcare | 0.00 |
| Utilities | 0.00 |
The fund’s geographic exposure is 65.29% in Canada and 25.95% in the United States.
As of July 18, 2022:
| Type | Fund |
|---|---|
| Canada | 65.29 |
| United States | 25.95 |
| South Africa | 7.94 |
| Cash and/or Derivatives | 0.09 |
| Other | 0.74 |
Blackrock lists XGD as a high-risk indicator. This corroborates the high volatility noted by Morningstar.
Source: Blackrock.com
Is XGD a good gold investment?
XGD is a high-potential gold ETF. It’s a leading Canadian ETF with high growth potential as well. It could perform better than regular gold ETFs that focus on just holding gold.
This is because, during 2020, gold had risen 35% from mid-March to early August. XGD rose over 85% in that same time period.
This suggests a high potential upside since the ETF is currently at a relatively low point from a 52-week perspective. That alone is a possible signal that it is a good buying opportunity since it is decently off its 52-week high.
Morningstar’s Factor Profile highlights the ETF’s current emphasis on lower yields, low momentum, high quality, high volatility, high liquidity and small size. These characteristics may not fit investors who are seeking high growth. Additionally, the high volatility indicates that the ETF may present more risk than what it’s worth.
Morningstar also compares XGD against the category average and the index amid various Style Factors. Across the board, including Price/Earnings, Long Term Earnings, Price/Cash Flow and more, XGD performs very similarly to the category average and the index.
XGD’s dividend yield is notably higher than the category average but unremarkable compared to the index.
| Value & Growth Measures | Investment | Cat. Average | Index |
|---|---|---|---|
| Price/Earnings | 15.63 | 14.15 | 13.88 |
| Price/Book | 1.41 | 1.29 | 1.37 |
| Price/Sales | 2.84 | 2.23 | 2.26 |
| Price/Cash Flow | 7.28 | 6.14 | 6.43 |
| Dividend Yield % | 3.80 | 2.72 | 3.83 |
| Long-Term Earnings % | 13.16 | 9.99 | 10.46 |
| Historical Earnings % | 9.90 | 11.61 | 17.22 |
| Sales Growth % | 7.80 | 8.84 | 9.85 |
| Cash-Flow Growth % | 19.12 | 23.01 | 20.65 |
| Book-Value Growth % | 7.06 | 9.35 | 9.84 |
XGD vs ZGD
ZGD is a global gold ETF offered by BMO. It closely replicates the Solactive Equal Weight Global Gold Index with less expense. Similar to XGD, ZGD focuses on global gold mining equities.
BMO has ZGD designated with a high-risk rating.
ZGD holds numerous equities. Its 35 assets are all roughly weighted equally. Some of their holdings include YRI, OGC, AGI, KNT and FNV.
| Weight (%) | Name | Bloomberg Ticker |
|---|---|---|
| 4.15% | YAMANA GOLD INC | YRI |
| 4.10% | OCEANAGOLD CORP | OGC |
| 4.06% | ALAMOS GOLD INC | AGI |
| 4.03% | K92 MINING INC | KNT |
| 3.72% | FRANCO-NEVADA CORP | FNV |
| 3.61% | DUNDEE PRECIOUS METALS INC | DPM |
| 3.58% | ROYAL GOLD INC | RGLD |
| 3.55% | SSR MINING INC | SSRM |
| 3.53% | ENDEAVOUR MINING PLC | EDV |
| 3.42% | B2GOLD CORP | BTO |
Nearly all of their holdings are materials, with 63% based in Canada, 12% from the US and the rest from various other countries.
The maximum annual management fee is 0.55%. The management expense ratio is 0.61%. These are the same as XGD’s rates.
| Maximum Annual Management Fee | 0.55% |
|---|---|
| Management Expense Ratio | 0.60% |
Morningstar’s factor profile describes ZGD as a growth ETF with low yield, low momentum, high quality, high volatility, high liquidity and small size. It has similar style measures to its category average and the index, except for its historical earnings % and its book-value growth %.
It appears that ZGD is very similar to XGD overall, with high risk, a strong focus on materials and relatively low market prices. However, ZGD appears to be more highly diversified in terms of its holdings and, to some extent, in its geographic allocation.
Despite the heavy diversification in ZGD’s holdings, it is still considered to be a high-risk ETF by both BMO and Morningstar. It seems that Blackrock prefers to focus on the big players, as their biggest holdings coincide with the gold producers with the highest market caps. Newmont, Barrick Gold and Franco Nevada total to over $100 billion in market cap.
Is XGD a Better Investment or ZGD?
Both ETFs appear to be very similar to each other, so trying to decide between the two may not be necessary.
If one is chasing growth or high return in either ETF, it appears that one will have to properly predict gold’s trend to try to ride gold either down or up since the long-term returns of both ETFs are unremarkable.
In other words, the high volatility in both ETFs could present opportunities to the right investors who can take advantage when the volatilities are present.
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Conclusion
In sum, XGD represents a possibly cheap ETF with material risk and high volatility. I am not sure it is wise to accept so much risk and so much volatility compared to possible non-gold investment options.
Granted, if you strongly believe in gold producers, this is a good way to gain exposure to them.
Overall, XGD is an easy and good way to gain exposure to gold producers in Canada. If your intention is to hedge against inflation, then it could be a good investment for you.
Be aware of its high-risk rating, and proceed cautiously by not investing a big proportion of your portfolio into it.
Learn more about the best gold ETFs in Canada here.
