GLD Offers Stability While SGDM Brings Higher Risk Reward

Sprott Gold Miners ETF (NYSEMKT:SGDM) and SPDR Gold Shares (NYSEMKT:GLD) both target gold exposure, but SGDM invests in gold mining equities while GLD directly tracks the price of physical gold, resulting in notable differences in risk, returns, and trading characteristics.

This analysis highlights how those structural choices affect cost, recent performance, risk, portfolio makeup, and trading friction for investors evaluating the two.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

GLD is slightly more affordable on expenses, with a 0.40% fee compared to SGDM’s 0.50%, which may appeal to cost-conscious investors seeking direct gold exposure.

Performance & risk comparison

What's inside

SPDR Gold Shares is a physically backed gold ETF that seeks to mirror the price of gold bullion, minus expenses. With over two decades of history and assets under management exceeding $170 billion, it is one of the most liquid ETFs in the world. The fund does not disclose individual holdings, as it is backed by allocated physical gold, and its sector exposure is entirely in basic materials. Trading friction is negligible, and its price movement closely tracks the gold spot price within a well-established range.

Sprott Gold Miners ETF, in contrast, invests in a portfolio of 40 gold mining companies, all within the basic materials sector. Its largest positions are Agnico Eagle Mines Ltd., Newmont Corp., and Wheaton Precious Metals Corp., which together account for over a quarter of the portfolio. This focus on mining stocks introduces equity market risk and can amplify both gains and losses compared to the price of gold itself.

What this means for investors

SGDM and GLD both offer gold exposure, but with distinct risk and return profiles. SGDM’s focus on gold miners can lead to higher volatility and greater drawdowns, while GLD’s direct gold tracking provides stability and deep liquidity.

Consequently, risk profiles differ for both of these exchange-traded funds (ETFs). GLD is a precious metals ETF, tracking the price of gold minus the fund’s fees. In contrast, SGDM is a more traditional ETF since it holds a basket of stocks.

Technically, SGDM is more diversified on account of its 40 holdings. However, all 40 of the holdings are gold mining companies. Such stocks tend to prosper in an environment of higher gold prices and fall when gold falls out of favor.

That likely explains why GLD outperformed SGDM for most of the previous five years. Nonetheless, because gold has recently flirted with record highs, SGDM has the edge on both one-year and five-year timelines.

Knowing this, investors may want to take their tolerance of volatility into account when choosing between these two holdings.

For more guidance on ETF investing, check out the full guide at this link.

Will Healy has positions in SPDR Gold Shares. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.