State Street Global Advisors, the asset management business of State Street Corporation, has published the results of its Gold ETF Impact Study: Advisor Edition, which was designed to better understand investor attitudes and behaviours around investing in gold.
According to the research, there is significant opportunity for investor education when it comes to gold investments, and advisers are playing an important role in helping clients understand its role in portfolios.
The study found that lack of knowledge is the number one reason why, among the options provided, surveyed investors do not invest in gold, with more than a third indicating they do not have gold in their portfolio because they do not know enough about the ways they can invest in gold. Furthermore, only 41 per cent of surveyed investors agree that they understand what influences the price of gold, compared to 75 per cent among those who actually do have gold in their portfolios.
When it comes to investing in gold ETFs, the advisers’ role as educator is critical, the study found. Nine out of 10 (91 per cent) surveyed investors who own gold ETFs indicated they were informed by their financial adviser about the different ways to invest in gold. A similar percentage (91 per cent) of surveyed investors indicated discussing an investment in gold with their financial advisers.
“Investors have good instincts about where – and when – to get objective advice. But it’s likely they will need even more guidance to achieve their financial goals as markets continue to react to higher interest rates, lower consumer sentiment and stubborn inflation,” says Allison Bonds, Head of Private and Independent Wealth Management at State Street Global Advisors.
Among surveyed investors with a financial adviser and holding a gold ETF in their portfolio:
91 per cent have discussed investing in gold with their financial adviser compared with 36 per cent of all surveyed investors with financial advisers;
89 per cent report their financial adviser has explained the benefits of having gold in their investment portfolio compared with 35 per cent of all surveyed investors with financial advisers;
83 per cent noted that their financial adviser recommended gold for their long-term investment portfolio versus 26 per cent of all surveyed investors with financial advisers; and
55 per cent reported their financial adviser recommended gold as a short-term investment given current markets compared to 17 per cent of all surveyed investors with financial advisers.
The survey also revealed approximately three in four gold ETF investors (73 per cent) agree that gold ETFs have improved the performance of their investment portfolio, with three-fourths (76 per cent) reporting that ETFs are a more cost-effective way to invest in gold.
Notably, across all surveyed investors (advised and self-directed) those who hold gold ETFs are more likely to have investable assets of USD500,000 or more (82 per cent) than those surveyed investors who do not hold gold ETFs (64 per cent).
“Financial advisers can be an invaluable resource for investors seeking to preserve wealth and improve the diversification of their portfolio as they may be more knowledgeable about the unique attributes of gold and the role it can play in a portfolio,” Bonds says. “With the introduction of SPDR Gold Shares (GLD) nearly two decades ago, and more recently SPDR Gold MiniShares (GLDM) five years ago, access to gold has been democratised for every type of investor.”
The top three variables surveyed gold ETF investors considered when buying a gold ETF are:
Expense ratio (65 per cent)
A structure that is physically backed by gold (55 per cent)
Reputation of provider (48 per cent)
SPDR gold ETF assets under management have increased USD2.9 billion year-to-date from USD58.6 billion as of 12/31/22 to $61.5 billion as 8/31/23.
Advisers who understand what is behind this interest may be better positioned to educate their clients about the potential benefits and risks of investing in gold, and how gold can play multiple roles in one’s overall portfolio strategy.
“We believe that better informed investors make better clients, as we believe that they’re less likely to invest in products they don’t understand, and we believe that they are less likely to panic when markets fluctuate over the short-term,” says Bonds.