Source physical gold ETF SGLD vs PHAU — cheaper, growing fast

Today I tried a bit of research on the size of gold ETFs traded on the London Stock Exchange and on the spreads investors are likely to see (with a helping hand from Index Universe ).

The process reveald a few more physical gold ETFs than I expected but most of them were pretty small compared to PHAU. GBS and Source (SGLD ), although I couldn’t always find their assets under management.

PHAU $

London Stock Exchange data on ETF (or exchange traded products if you prefer) trading between 27 February — 2 March 2012 showed that ETFS Physical Gold ETF alone made up 24% of all the turnover of all ETF or exchange traded products on the London Stock Exchange.

It did this in just 269 individual trades (8.81% of all ETF trades on the LSE that week) with each trade averaging 137,996 in size — achieving a turnover of 37 million. The time weighted spread — the difference between the buying and selling price of the shares — was 8 basis points or 0.08%, pretty low.

PHGP

In comparison ETF Securities’ sterling denominated PHGP physical gold ETF made up a much smaller percentage of the total ETF turnover on the LSE: 5.4% or 8.3 million. But despite this there were more trades, 297 of them or 9.73% of all ETF/ETP trades on the London Stocke Exchange.

The time weighted spread for these was 15 basis points, just under twice as high as that of PHAU.

But, one week earlier — from 20-24 February 2012 — PHAU saw even more action and its 210 million turnover made up 33% of total ETF turnover on LSE. In the same week PHGP saw turnover of 16.9 million (2.7% of all ETF turnover on the LSE).

Despite this huge difference in turnover PHAU and PHGP saw similar numbers of trades 917 and 860 respectively (9.7% and 8.9% of all ETF trades on LSE). The difference in spreads was three-fold: 5 basis points (0.05%) between buying and selling price for PHAU and 16 (0.16%) for PHGP.

Considering that they both charge 0.39% per year in management fees the extra cost of PHGP in terms of spreads doesn’t look quite so insignificant. Especially as the fastest growing Physical Gold ETF in 2011 — Source Physical Gold (SGLD ) — is growing fast because it charges just 0.29% management fee. In both weeks (20-24 February and 27 Feb-2 March) it had time weighted spreads of 9 basis points or 0.09%.

So it’s cheaper to own and to buy than PHGP and PHAU. Today I saw that one of its trades (an ‘ordinary trade’ which means it was off exchange and does not show as a buy or sell — just that this many shares changed hands) was 48 million. But like I said I don’t know if that’s as big as it appears to be in the context of weekly turnover.

Even without this 48 million exchange being included in its ‘buy’ trades SGLD saw buys of more than 52 million compared to 1.2 million in sells. While PHAU saw more selling (11 million) than buying (3.8 million).

Is this just down to cost differences? Here’s how the breakdown of physical gold ETF market share has changed with the data I could find — so not all physical gold ETFs are included.

Source trading on Thursday:

PHAU trading on Thursday: