Gold ETFs: The top funds to gain commodity exposure

Gold prices (GC=F) have shot up to an all-time high earlier this week as the commodity rallies this late into 2023. VettaFi Financial Futurist Dave Nadig is calling gold an "inbetweener asset" positively performing in the middle of bonds and stocks this year.

Nadig joins Yahoo Finance Live to explain how investors can find exposure to gold through ETFs, while also discussing bond market exposures and "momentum" trading.

"Consider this sort of the Cybertruck of assets, it's the one you hold for the apocalypse, and what we have seen as folks pile into ETFs," Nadig says. "Now, unfortunately what we see is people pile into the ticker they know, which in this case, would be GLD. It's a household name, but it's consistently underperformed two other cheaper versions of the exact same exposure."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

AKIKO FUJITA: Signs of peaking interest rates sent the price of the commodity to a new all-time high. So how else can you invest in it going into 2024? As part of our ETF report brought to you by Invesco QQQ, let's bring in VettaFi Financial Futurist, Dave Nadig, to discuss more. Dave, this is certainly a very timely conversation given the huge run up that we have seen in gold. How do you play it in ETFs?

DAVE NADIG: Well, I think what's happened with gold is really interesting. I think the thing I'd point out is while, yes, we've had gold being in between our asset, you know, it's not quite doing as well as stocks, but it's doing better than bonds so far this year. If you look at what happened in November, we saw both the S&P 500 and gold go up in the same month. And generally, that doesn't happen, not with big moves. And I think last month it was plus 9 on the S&P and plus 3 on gold. That to me implies that we have a real buying frenzy for people who I would suggest are really apocalypse buying gold.

If you look at the global geopolitical concerns people have, whether it's the Middle East, whether it's Europe, whether it's what we've been seeing now in South America, all of those kinds of geopolitical turmoil always drive folks to the yellow metal. They drive folks toward gold. And so we've seen a lot of activity in the gold bugs, if you will. Consider this sort of the Cybertruck of assets. It's the one that you hold for the apocalypse. And what we've seen is folks pile into ETFs.

Now unfortunately what we often see is people pile into the ticker that they know, which in this case would be GLD. It's a household name. But it's consistently underperformed two other cheaper versions of really the exact same exposure. I'd highlight GLDM also from State Street and BAR from GraniteShares. Both of them are a little bit cheaper, and year after year, they eke out that 20, 30, 50 basis point outperformance.

RACHELLE AKUFFO: So Dave, when people are trying to follow some of these trends and trying to decipher, as you mentioned there, making some mistakes in terms of some of the tickers that they're following then. How do they determine when they're trying to vet some of these trends that they want to follow?

DAVE NADIG: Well, there are lots of ways to get information on the ETF market. You can obviously come to the properties we run at VettaFi. You can open up the newspaper. You can go to Yahoo Finance. There's lots of ways to get access to information about ETFs. The most important thing, though, is look under the hood, and make sure you understand what you're buying. The ETF market has gotten big, and it's gotten complicated. There's thousands of ETFs right now. For any given idea you may have, there's probably a dozen ETFs tracking that segment. They're not all created the same.

AKIKO FUJITA: The other asset class we've been watching really closely, of course, bonds saw a huge run up this year. But we have seen a significant pullback in yields there. What are the inflows look like right now on your end? And how do people play this space?

DAVE NADIG: Well, the flows into ETFs this year have actually been pretty boring. And by what I mean-- what I mean by that is it's been sort of a 60/40 allocation. About 40% of the assets have gone into fixed income, which is historically quite a lot. The interesting twist is a lot of that is chased active management in the bond space as well. There are a lot of very high profile active bond managers out there, PIMCO, DoubleLine, just to name two. Fidelity's FBND, their total bond portfolio has pulled in $4 billion this year so far. So people are really looking for different ways of playing the market.

I know we talk a lot about T-bill and chill, but that's not what ETF investors are doing. They're looking for those pockets of value where they can figure out other ways to play the market. I'd highlight one other really interesting approach here that just launched I think last week, RSSB, which is Return Stacked Stocks and Bonds. And the idea there is it uses a very judicial amount of leverage. So that you put a dollar in, and you get a bucket of global equity exposure and a bucket of core Treasury exposure. Kind of an interesting way to get a little bit more efficient with your capital.

RACHELLE AKUFFO: And in terms of separating the hype going into 2024, I mean, you have the Bitcoin spot ETF, what are some of the ones that you're watching that go beyond the hype that have really solid fundamentals that could be an opportunity here?

DAVE NADIG: Well, we had a great article this week that just came in the Wall Street Journal looking at momentum trading. And we've definitely seen a lot of interest in momentum. Certainly, if you look at the disparate-- the disparity this year between say the Magnificent Seven stocks and the S&P 500, say the queues versus the S&P 500, that gap is just enormous. And so lots of folks are trying to figure out the best way to play that momentumy growthy part of the market.

I'd put a little caution on that though. Because while momentum investing does work, the big challenge there is how do when to get in and out of the market. There are a few funds I'd highlight there, Alpha Architects, QMOM, Q-M-O-M, a great way to think about momentum into next year.