By Lewis Braham
How much is fear worth? That, in a nutshell, is the difficulty in valuing gold. It’s the currency of last resort for those who are afraid that all other assets will eventually become worthless. The greater investors’ angst, the higher gold’s value. Thus it commands a “fear premium” unlike any other asset.
That anxiety can translate into a desire among certain investors to keep physical gold in vaults in their basements, or shoved under their mattresses. If the much-anticipated global financial meltdown or zombie apocalypse occurs, having a bar or two on hand could prove useful—if not to barter, then to at least bash a zombie over the head.
If you’re among the nail-biting set, this year may be the one to buy the VanEck Merk Gold Trust exchange-traded fund (ticker: OUNZ). With Brexit in the rearview mirror and a contentious presidential election on the horizon, there is no shortage of fear. VanEck Merk is up 26.7% year-to-date, a fraction higher than the largest gold ETF, the $41.7 billion SPDR Gold Trust (GLD).
Both ETFs have identical 0.4% expense ratios. But VanEck has a unique feature that gives it added appeal. Retail investors can redeem their shares in ounces of physical gold that will be delivered to them for a fee. This made the upstart ETF, which has gathered $156 million since its May 2014 launch, very interesting, even during last year’s bear market. It had a 46% growth in investor inflows in 2015, according to Morningstar, while the precious-metals sector saw minus 6.4% in outflows.
That’s off a small base, but the fact that investors were buying this fund while gold was getting hammered is significant. “Since the launch of SPDR Gold Trust, there have been some in the gold investment community who refer to it in a negative way as ‘paper gold,’ ” says Dave Nadig, FactSet’s director of ETFs. “There’s a belief system that’s somewhat conspiratorial that there’s no gold in the vault. Having a sense of physical access to the gold is important to those investors.”
Indeed, Axel Merk, who as president of Merk Investments designed the new ETF, consulted the doubting Thomases in the gold blogosphere before launching it. “When we structured this ETF, we wanted to offer what SPDR Gold offers and more,” he says. “We think we’ve designed a better product.”