Vanguard: Please Offer a Gold ETF

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bjr89
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Vanguard: Please Offer a Gold ETF

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Re: Vanguard: Please Offer a Gold ETF

Post by jhfenton »

I understand the sentiment: I want to invest in x. x would be cheaper if Vanguard offered a fund in x. Please, Vanguard, offer a fund in x.

I just have many values of x that would come before x=Au.

A few off the top of my head:

1. EM ex-China
2. International Value Index
3. International Small Value
4. EM Value
5. China
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Re: Vanguard: Please Offer a Gold ETF

Post by livesoft »

bjr89 wrote: Thu Sep 21, 2017 1:02 pmEven if you personally don't plan to hold gold, you should probably want Vanguard to grow as much as it can as a business so that it can pass along profits in the way of expense reduction for its other funds that you do use.)
I think you are thinking about this wrong. Since a Vanguard gold ETF would not pay for itself, it would be a drain on clients who didn't use it.

Personally, I'd rather have Vanguard get rid of all Investor-share-class funds in order to save money. Just think of the extra pages on their web site that they could get rid of along with the extra text in the prospectuses, and answering the phone calls of clients confused by the different share classes, and on and on.
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Re: Vanguard: Please Offer a Gold ETF

Post by denovo »

bjr89 wrote: Thu Sep 21, 2017 1:02 pm I The precious metals fund currently offered by Vanguard is not an adequate substitute
Can you explain why?
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Re: Vanguard: Please Offer a Gold ETF

Post by Whakamole »

jhfenton wrote: Thu Sep 21, 2017 1:29 pm I understand the sentiment: I want to invest in x. x would be cheaper if Vanguard offered a fund in x. Please, Vanguard, offer a fund in x.

I just have many values of x that would come before x.

A few off the top of my head:

1. EM ex-China
2. International Value Index
3. International Small Value
4. EM Value
5. China
6. EM Small Value.
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Re: Vanguard: Please Offer a Gold ETF

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Re: Vanguard: Please Offer a Gold ETF

Post by Whakamole »

The issue with gold ETFs that hold the physical metal (like GLD) is that they have to hold the commodity. That means you need bank vaults, storage, auditing, assaying, etc. It's an expensive endeavor. There's also a issue depending on the popularity of gold as an investment - if gold takes off, you need to acquire more vaults. Then you need to get rid of them if people decide to invest in something else.

FYI one thing about these ETFs that all Bogleheads may find interesting is how expense ratios impact your returns. When started, the price of SLV was equal to an ounce of silver, and GLD to the price of a tenth of an ounce of gold.

Today, SLV is $16.03; silver spot is $16.95 bid/$16.72 ask, so that 0.50% ER has cost you a pretty penny. GLD is $122.69, and gold spot for a tenth of an ounce is $129.01 bid/$128.75 ask.

It's the easiest way I know of to see decay based on ER.
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Re: Vanguard: Please Offer a Gold ETF

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Re: Vanguard: Please Offer a Gold ETF

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bjr89 wrote: Thu Sep 21, 2017 1:02 pmThe precious metals fund currently offered by Vanguard is not an adequate substitute as it's highly correlated with equities.
Can you provide evidence showing that this is true? Because I can provide evidence showing it is not the case.
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Re: Vanguard: Please Offer a Gold ETF

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Re: Vanguard: Please Offer a Gold ETF

Post by denovo »

bjr89 wrote: Thu Sep 21, 2017 1:47 pm
denovo wrote: Thu Sep 21, 2017 1:38 pm
This is why... (correlation matrix) https://www.portfoliovisualizer.com/ass ... ingDays=60
Vanguard likes to create funds for asset classes/sectors. Precious Metals are a legitimate asset class. Correlation in your link was .5, not close to 1. Either way, that's neither here nor there. Maybe there's other precious metals that also have low correlation. Why make a fund for that and not gold?
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Re: Vanguard: Please Offer a Gold ETF

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bjr89 wrote: Thu Sep 21, 2017 2:50 pm
asif408 wrote: Thu Sep 21, 2017 2:45 pm
bjr89 wrote: Thu Sep 21, 2017 1:02 pmThe precious metals fund currently offered by Vanguard is not an adequate substitute as it's highly correlated with equities.
Can you provide evidence showing that this is true? Because I can provide evidence showing it is not the case.
https://www.portfoliovisualizer.com/ass ... ingDays=60
And looking at the rolling 60-day correlations chart from your link, the correlation started falling in 2012 and since 2015 the correlation between VTSMX and VGPMX has been about 0.2:

https://www.portfoliovisualizer.com/ass ... ingDays=60

I wouldn't call that high and I surely don't see a pattern of increasing or permanently high correlation.
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Re: Vanguard: Please Offer a Gold ETF

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Re: Vanguard: Please Offer a Gold ETF

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bjr89 wrote: Thu Sep 21, 2017 3:16 pmHow is .66 = .5? Meanwhile gold had a 0.04 correlation. No commodity is quite like gold, because the others have uses often related more to the economy, while gold is the only commodity that's ever been used as store of value in a big way and the supply/demand issues relating to production and use are small in comparison. SLV for example has had a .24 correlation to stocks since inception. To be fair we are examining too small of a time frame. Here is a link to the inception of Vanguard PM, with gold and the S&P for reference. https://www.portfoliovisualizer.com/bac ... ion2_2=100

-0.06 for gold vs .36 for PM stocks.

They are not the same thing and anyone who invested in PM stocks during 2008 found this to be true when they lost 56% vs a 3% gain in gold.
I don't have any comments about PME vs gold since that was not my point. But at least you acknowledged that the correlation for stocks and PM isn't high (0.36), which was my point. And there is no evidence of increasing or permanently high correlations between stocks and PM. So thanks. Now continue on with the gold conversation.
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Re: Vanguard: Please Offer a Gold ETF

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Re: Vanguard: Please Offer a Gold ETF

Post by Northern Flicker »

I have no interest in investing in gold, but 25 bp/yr for an ETF like IAU to hold a commodity with storage costs seems quite cheap to me. I doubt Vanguard could beat that.
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Re: Vanguard: Please Offer a Gold ETF

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Re: Vanguard: Please Offer a Gold ETF

Post by nisiprius »

I don't think there are any "gold ETFs." GLD and IAU are not ETFs.

Please be careful about this. Not everything with a three-letter ticker symbol as an ETF.

https://www.ishares.com/us/literature/p ... -12-31.pdf
The authors of the GLD prospectus wrote: The Trust is not an investment company registered under the Investment Company Act of 1940. The Trust is not a commodity pool for purposes of the United States Commodity Exchange Act of 1936, as amended (the “Commodity Exchange Act” or “CEA”).... The Trust is not registered as an investment company for purposes of United States federal securities laws, and is not subject to regulation by the SEC as an investment company. Consequently, the owners of Shares do not have the regulatory protections provided to investors in registered investment companies. For example, the provisions of the Investment Company Act of 1940 that limit transactions with affiliates, prohibit the suspension of redemptions (except under certain limited circumstances) or limit sales loads, among others, do not apply to the Trust.

The Trust does not hold or trade in commodity futures contracts or any other instruments regulated by the CEA, as administered by the CFTC. Furthermore, the Trust is not a commodity pool for purposes of the CEA. Consequently, the Trustee and Sponsor are not subject to registration
as commodity pool operators with respect to the Trust. The owners of Shares do not receive the CEA disclosure document and certified annual report required to be delivered by the registered commodity pool operator with respect to a commodity pool, and the owners of Shares do not have the regulatory protections provided to investors in commodity pools operated by registered commodity pool operators.
http://www.spdrgoldshares.com/media/GLD ... 170508.pdf
The authors of the GLD prospectus wrote:Shareholders do not have the protections associated with ownership of shares in an investment company registered under the Investment Company Act of 1940 or the protections afforded by the CEA.

The Trust is not registered as an investment company under the Investment Company Act of 1940 and is not required to register under such act. Consequently, Shareholders do not have the regulatory protections provided to investors in registered investment companies. The Trust will not hold or trade in commodity futures contracts regulated by the CEA, as administered by the CFTC. Furthermore, the Trust is not a commodity pool for purposes of the CEA, and none of the Sponsor, the Trustee, or the Marketing Agent is subject to regulation by the CFTC as a commodity pool operator or a commodity trading advisor in connection with the Shares. Consequently, Shareholders do not have the regulatory protections provided to investors in CEA-regulated instruments or commodity pools.
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Re: Vanguard: Please Offer a Gold ETF

Post by nisiprius »

jalbert wrote: Thu Sep 21, 2017 3:41 pm I have no interest in investing in gold, but 25 bp/yr for an ETF like IAU to hold a commodity with storage costs seems quite cheap to me. I doubt Vanguard could beat that.
I agree. And physically storing gold in vaults is probably not one of Vanguard's "core competencies."
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Re: Vanguard: Please Offer a Gold ETF

Post by Jiu Jitsu Fighter »

bjr89 wrote: Thu Sep 21, 2017 3:16 pm
denovo wrote: Thu Sep 21, 2017 2:52 pm
bjr89 wrote: Thu Sep 21, 2017 1:47 pm
denovo wrote: Thu Sep 21, 2017 1:38 pm
This is why... (correlation matrix) https://www.portfoliovisualizer.com/ass ... ingDays=60
Vanguard likes to create funds for asset classes/sectors. Precious Metals are a legitimate asset class. Correlation in your link was .5, not close to 1. Either way, that's neither here nor there. Maybe there's other precious metals that also have low correlation. Why make a fund for that and not gold?
asif408 wrote: Thu Sep 21, 2017 2:58 pm
bjr89 wrote: Thu Sep 21, 2017 2:50 pm
asif408 wrote: Thu Sep 21, 2017 2:45 pm
bjr89 wrote: Thu Sep 21, 2017 1:02 pmThe precious metals fund currently offered by Vanguard is not an adequate substitute as it's highly correlated with equities.
Can you provide evidence showing that this is true? Because I can provide evidence showing it is not the case.
https://www.portfoliovisualizer.com/ass ... ingDays=60
And looking at the rolling 60-day correlations chart from your link, the correlation started falling in 2012 and since 2015 the correlation between VTSMX and VGPMX has been about 0.2:

https://www.portfoliovisualizer.com/ass ... ingDays=60

I wouldn't call that high and I surely don't see a pattern of increasing or permanently high correlation.
How is .66 = .5? Meanwhile gold had a 0.04 correlation. No commodity is quite like gold, because the others have uses often related more to the economy, while gold is the only commodity that's ever been used as store of value in a big way and the supply/demand issues relating to production and use are small in comparison. SLV for example has had a .24 correlation to stocks since inception. To be fair we are examining too small of a time frame. Here is a link to the inception of Vanguard PM, with gold and the S&P for reference. https://www.portfoliovisualizer.com/bac ... ion2_2=100

-0.06 for gold vs .36 for PM stocks.

They are not the same thing and anyone who invested in PM stocks during 2008 found this to be true when they lost 56% vs a 3% gain in gold.

Also, here's an historical efficient frontier with the three assets (S&P, PM stocks, gold). Tangency had zero allocation to PM stocks. Not that this is necessarily representative of the future, but its worth considering in terms of how these things have diversified each other in the past. https://www.portfoliovisualizer.com/eff ... geCapBlend
Agreed 100%. This board is extremely anti-gold save for a few individuals. There is a fallacy that stocks and bonds always counterbalance each other. However, history has shown that this is not the case. Bonds can fall in value at the same time stocks are going down. Gold isn't correlated to either and slightly negatively correlated to bonds. As far as gold mining stocks, most of these are too speculative and they hedge the price of gold - usually at the wrong time. Listen to the interviews of the mining CEOs. They wouldn't be competent to run any other type of company. Look at the last bull market in gold. Miners substantially underperformed the commodity itself. Why take on the volatility of miners while at the same time accepting lower returns then the commodity it mines? Unlike other commodities, you do not have to worry about contango issues unless you dabble in futures. I'm not advocating something like the permanent portfolio, but allocating 5% of your portfolio to an asset class that is uncorrelated to the rest of your portfolio cannot be considered radical, and, in my opinion, is a very prudent thing to do. Just ask Ray Dalio. There doesn't have to be an end of the world scenario for it to add benefit to your portfolio. Just because it doesn't produce anything or pay a dividend doesn't mean it is invaluable to your portfolio (how many times do we have to hear this?). People would consider a T-bill an investment, but it pays less than the current rate of inflation meaning that it has a negative real return and Berkshire doesn't pay a dividend. Are these investments?

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Re: Vanguard: Please Offer a Gold ETF

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Re: Vanguard: Please Offer a Gold ETF

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bjr89 wrote: Thu Sep 21, 2017 1:02 pm If anyone high up at Vanguard reads this, could you please consider launching a gold ETF similar to GLD and IAU? The fees in this space are relatively high at (.4% and .25% for the prior two mentioned funds) and could greatly use Vanguard's razor thin fee competition. The precious metals fund currently offered by Vanguard is not an adequate substitute as it's highly correlated with equities. I understand there is concern relating to the lack of enduring risk premium in commodities, but an expectation of return isn't necessary if an asset effectively serves as insurance for the rest of the portfolio. Perhaps if enough of us request this, it will be taken seriously.

(Not really looking to turn this thread into an argument about the merits of gold as an investment. Even if you personally don't plan to hold gold, you should probably want Vanguard to grow as much as it can as a business so that it can pass along profits in the way of expense reduction for its other funds that you do use.)
This is an interesting question. The thing is, there are a lot of things Vanguard could do cheaper but it doesn't mean Vanguard should do it. It would be like saying that Vanguard could run the lottery cheaper than the state and thus pay out a higher percentage in prizes. It really goes to what Vanguard's mission is and what type of investment vehicles fit into that mission. The issue of mission creep is probably a discussion point with the Vanguard management. Pretty much, when I think of Vanguard, I think of low-cost mutual funds and ETFs, not a source of every imaginable investment. Does a Gold ETF fit within that mission?
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Re: Vanguard: Please Offer a Gold ETF

Post by nisiprius »

bjr89 wrote: Thu Sep 21, 2017 3:58 pm
nisiprius wrote: Thu Sep 21, 2017 3:51 pm
It can be an ETF without being an investment company. They are trusts, but still ETFs.
https://www.spdrgoldshares.com/
"SPDR® Gold Shares is the largest physically backed gold exchange traded fund (ETF) in the world."
I'm almost ready to stand corrected, but I'd like you to explain how this jibes with this statement from the Investment Company Institute, suggesting that ETFs and unit investment trusts are two different things:
https://www.ici.org/pdf/ppr_17_etf_list ... ndards.pdf
What Is an ETF?
An ETF is a pooled investment vehicle with shares that can be bought or sold throughout the day on an exchange at a market-determined price. Like a mutual fund, an ETF offers investors a proportionate share in a pool of stocks, bonds, and other assets. The SEC regulates ETFs under the Investment Company Act of 1940 generally under the same regulatory requirements as mutual funds and unit investment trusts (UITs).
If SPDR says that GLD is "not registered as an investment company under the Investment Company Act of 1940" and if the ICI says that "The SEC regulates ETFs under the Investment Company Act of 1940," then how can GLD be an ETF?
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Re: Vanguard: Please Offer a Gold ETF

Post by Jiu Jitsu Fighter »

jhfenton wrote: Thu Sep 21, 2017 1:29 pm 1. EM ex-China
2. International Value Index
3. International Small Value
4. EM Value
5. China
1. Global Small-Value (including US) Fund
2. Gold Bullion Fund
3. Global Multi-Factor Fund

No chance at these, though.
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Re: Vanguard: Please Offer a Gold ETF

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Re: Vanguard: Please Offer a Gold ETF

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bjr89 wrote: Thu Sep 21, 2017 4:24 pm
nedsaid wrote: Thu Sep 21, 2017 4:10 pm
Hey ned, good to hear from you. I'd just say that gold is an investment, whereas lottery tickets are... gambles... not investments. SSGA and BlackRock are investment management firms and have gold funds. They don't run the lottery, nor do they run casinos. Vanguard should have a gold fund for the same reasons the other two of the Big Three ETF providers do. Fits perfectly in their mission AFAIC.
nisiprius wrote: Thu Sep 21, 2017 4:11 pm
I just think the ICI is oversimplifying or just plain wrong in their wording. Here, look at SPY -- the largest ETF in the world. A unit investment trust, not an investment company, but still an ETF.
https://us.spdrs.com/en/etf/spdr-sp-500 ... 00-etf-SPY
Well, Gold has a zero real rate of return over very long periods of time so I don't regard it as an investment as such. It does have very low correlation with the stock market so it should reduce the long term volatility of a portfolio at the price of performance drag. So I would view it as portfolio insurance, insurance against fiat currencies, and as a long term store of value. There are rational reasons to hold physical gold in a portfolio. Somehow the mental picture of John Bogle as Scrooge McDuck counting the Gold in Vanguard's vaults brings a smile to my face. You do make a good case that such an ETF would be within Vanguard's mission. After that, I suppose Vanguard could take aim at AQR and offer lower cost factor funds that use leverage and shorting. At some point, Vanguard needs to define its circle of competence and stay within it.
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Re: Vanguard: Please Offer a Gold ETF

Post by Whakamole »

nedsaid wrote: Thu Sep 21, 2017 4:32 pm Well, Gold has a zero real rate of return over very long periods of time so I don't regard it as an investment as such. It does have very low correlation with the stock market so it should reduce the long term volatility of a portfolio at the price of performance drag. So I would view it as portfolio insurance, insurance against fiat currencies, and as a long term store of value. There are rational reasons to hold physical gold in a portfolio. Somehow the mental picture of John Bogle as Scrooge McDuck counting the Gold in Vanguard's vaults brings a smile to my face. You do make a good case that such an ETF would be within Vanguard's mission. After that, I suppose Vanguard could take aim at AQR and offer lower cost factor funds that use leverage and shorting. At some point, Vanguard needs to define its circle of competence and stay within it.
Vanguard already has a long-short fund: https://institutional.vanguard.com/VGAp ... undId=1298
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Re: Vanguard: Please Offer a Gold ETF

Post by Phineas J. Whoopee »

Jiu Jitsu Fighter wrote: Thu Sep 21, 2017 3:56 pm...
Agreed 100%. This board is extremely anti-gold save for a few individuals. There is a fallacy that stocks and bonds always counterbalance each other. However, history has shown that this is not the case. ...
Only among some people, mostly not posters here, who don't understand what the word correlated means, in the sense of listed stocks and investment grade bonds in the US have had close to zero correlation.

We can talk about gold again, if you like, but let's go easy on the casting blanket aspersions at other posters part.

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Re: Vanguard: Please Offer a Gold ETF

Post by lack_ey »

Terminology is not really consistent, as some use ETF to mean only '40 Act open-ended funds, while others use ETFs in the broader sense and include unit investment trusts, grantor trusts, exchange-traded notes, etc. that are exchange traded. Some prefer the broader and less descriptive ETP (exchange-traded product) to refer to the broad category.

In any case, the ETPs physically holding precious metals are structured as grantor trusts, even new ones launched this year—other than a couple of weirdo ETNs that physically hold but also run a an options overlay strategy on top, selling calls. It's not a case of some old ETPs like SPY or QQQ that were launched a couple decades ago when the ETF (strict definition) was less common or hadn't existed yet. The grantor trust structure means ownership of the underlying, where the managers can't lend the securities out or anything like that.


By the way, there's a GraniteShares Gold Trust (BAR) with an ER of 0.20%, but it is very new with low AUM.
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Re: Vanguard: Please Offer a Gold ETF

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bjr89 wrote: Thu Sep 21, 2017 4:24 pm
nedsaid wrote: Thu Sep 21, 2017 4:10 pm
Hey ned, good to hear from you. I'd just say that gold is an investment, whereas lottery tickets are... gambles... not investments. SSGA and BlackRock are investment management firms and have gold funds. They don't run the lottery, nor do they run casinos. Vanguard should have a gold fund for the same reasons the other two of the Big Three ETF providers do. Fits perfectly in their mission AFAIC.
nisiprius wrote: Thu Sep 21, 2017 4:11 pm
Here, look at SPY -- the largest ETF in the world. A unit investment trust, not an investment company, but still an ETF. I suppose they can still regulate them under the act without them technically being an investment company.
https://us.spdrs.com/en/etf/spdr-sp-500 ... 00-etf-SPY

Furthermore, "the SEC regulates ETFs under the Investment Company Act of 1940 generally under the same regulatory requirements as mutual funds and unit investment trusts (UITs)."
UITs are ETFs, but not all ETFs are UITs.
The Vanguard page has a little better language that I think helps explain how special ETF's such as GLD, which may be called ETFs, but do not have the same legal protections as ETF's that are regulated under the 1940 act.


https://advisors.vanguard.com/VGApp/iip ... oRegulates
Keep in mind that ETFs structured as open-end investment companies and unit investment trusts (UITs) are regulated by the 1940 Act. Other ETF structures that mainly accommodate alternative investments restricted in a 1940 Act vehicle—grantor trusts, partnerships, and exchange-traded notes (ETNs)—are not regulated under the 1940 Act and may not provide its additional protections.
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Re: Vanguard: Please Offer a Gold ETF

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Re: Vanguard: Please Offer a Gold ETF

Post by arcticpineapplecorp. »

sure, right after Vanguard launches its bitcoin etf. :oops:
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Re: Vanguard: Please Offer a Gold ETF

Post by Phineas J. Whoopee »

bjr89 wrote: Thu Sep 21, 2017 4:48 pm...
I would say gold is an investment in the same way any other currency or commodity is. Even cash is technically an investment. ...
And that's what it continually comes down to. All these gold threads aren't about gold, but about the definition of the term investment, and sometimes the definition of the term correlation. Look up past threads if you want to read them.

If we're to argue about definitions of terms let's at least do so explicitly.

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Re: Vanguard: Please Offer a Gold ETF

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Re: Vanguard: Please Offer a Gold ETF

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Re: Vanguard: Please Offer a Gold ETF

Post by cnh »

To the OP:

Give it up, mate. You've undertaken an exercise in frustration (although, speaking personally, I've had the same question myself). You've taken one approach to promoting discussion that is on one extreme end of the spectrum. The approach on the other end is something along the lines of "Which portfolio is better, three-fund or four?" Best to shoot for something in between, thereby avoiding an elevated blood pressure event.

Thanks for initiating the entertainment though.
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Re: Vanguard: Please Offer a Gold ETF

Post by AlohaJoe »

bjr89 wrote: Thu Sep 21, 2017 1:02 pm If anyone high up at Vanguard reads this, could you please consider launching a gold ETF similar to GLD and IAU? The fees in this space are relatively high at (.4% and .25% for the prior two mentioned funds) and could greatly use Vanguard's razor thin fee competition.
So use BAR. There's already competition, so I'm not sure adding Vanguard to the mix is necessary. There's already a price war happening with gold ETFs, so we'll see how that plays out.
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Re: Vanguard: Please Offer a Gold ETF

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nedsaid
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Re: Vanguard: Please Offer a Gold ETF

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Whakamole wrote: Thu Sep 21, 2017 4:40 pm
nedsaid wrote: Thu Sep 21, 2017 4:32 pm Well, Gold has a zero real rate of return over very long periods of time so I don't regard it as an investment as such. It does have very low correlation with the stock market so it should reduce the long term volatility of a portfolio at the price of performance drag. So I would view it as portfolio insurance, insurance against fiat currencies, and as a long term store of value. There are rational reasons to hold physical gold in a portfolio. Somehow the mental picture of John Bogle as Scrooge McDuck counting the Gold in Vanguard's vaults brings a smile to my face. You do make a good case that such an ETF would be within Vanguard's mission. After that, I suppose Vanguard could take aim at AQR and offer lower cost factor funds that use leverage and shorting. At some point, Vanguard needs to define its circle of competence and stay within it.
Vanguard already has a long-short fund: https://institutional.vanguard.com/VGAp ... undId=1298
Yep, they are headed down that slippery slope aren't they?
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Re: Vanguard: Please Offer a Gold ETF

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bjr89 wrote: Thu Sep 21, 2017 4:48 pm
nedsaid wrote: Thu Sep 21, 2017 4:32 pm
I would say gold is an investment in the same way any other currency or commodity is. Even cash is technically an investment. It doesn't need a return expectation in excess of inflation (or at all) to be classified as such. It's not insurance technically, although it has tended to function as stock and bond insurance in a portfolio context historically. Vanguard already does the long/short factor thing, just not in a big way, via their market neutral fund. I would say their circle of competence should be attempted to be expanded lest they become irrelevant. Gold is pretty traditional though, fitting in with their image, in contrast to factor investing, which is fairly modern.
There are rational reasons to own such things as gold, commodities, foreign currencies in a portfolio. I don't get too hung up on semantics, I am just raising the philosophical point that I want my asset classes to have return after inflation over time. Sort of reminds me of the argument I had with Larry over the definition of passive investing, DFA funds for example are not quite passive in my opinion as they utilize stock screens and they fine tune those screens all the time. But you know, sometimes an imprecise definition is close enough. I am not the guardian of investment terminology purity, scolding those who don't use terminology as precisely as I like. I am not going to whack your hand with a ruler. Asset classes with zero or even negative real returns over time are close enough to a definition of an investment for me. In a similar manner, to make Larry Swedroe happy I will say that DFA Funds are passive though I have my fingers crossed behind my back. I know what you mean and I know what Larry means and that is close enough.
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Re: Vanguard: Please Offer a Gold ETF

Post by cnh »

I am just raising the philosophical point that I want my asset classes to have return after inflation over time.
I always wonder why one focuses on the individual returns of asset classes in a portfolio rather than the total return of the portfolio as a whole. Since few own single asset portfolios over long periods of time, why care about single asset class returns? If an asset, even if it has negative long-term returns, increases the total portfolio returns (while often reducing portfolio volatility in the process), why isn't it a valued component of a portfolio?
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Re: Vanguard: Please Offer a Gold ETF

Post by arcticpineapplecorp. »

bjr89 wrote: Thu Sep 21, 2017 5:05 pm
arcticpineapplecorp. wrote: Thu Sep 21, 2017 4:57 pm sure, right after Vanguard launches its bitcoin etf. :oops:
Why? Because a several billion year old metal that's been used as a store of value for thousands of years has the same legitimacy as a highly volatile and speculative digital currency invented less than a decade ago? I guess that's why the United States holds bitcoin and not gold. Wait it's the other way around...
https://en.wikipedia.org/wiki/False_equivalence :oops:
o.k. I take it back...how about:

sure, right after Vanguard launches its silver etf. :oops:
sure, right after Vanguard launches its copper etf. :oops:
sure, right after Vanguard launches its palladium etf. :oops:
sure, right after Vanguard launches its platinum etf. :oops:

is that still a false equivalence?

Don't say you can get all that with vgpmx. You get 79 companies that deal in precious metals, not the shiny stuff itself, which is what the OP is hoping for.
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Re: Vanguard: Please Offer a Gold ETF

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bjr89 wrote: Thu Sep 21, 2017 1:02 pm If anyone high up at Vanguard reads this, could you please consider launching a gold ETF similar to GLD and IAU? The fees in this space are relatively high at (.4% and .25% for the prior two mentioned funds) and could greatly use Vanguard's razor thin fee competition.
I would be afraid Vanguard customer service would misplace the Gold for weeks at a time. They wouldn't lose it, just have to open a ticket to find it.
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bjr89
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Re: Vanguard: Please Offer a Gold ETF

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Re: Vanguard: Please Offer a Gold ETF

Post by nisiprius »

cnh wrote: Thu Sep 21, 2017 8:06 pm
I am just raising the philosophical point that I want my asset classes to have return after inflation over time.
I always wonder why one focuses on the individual returns of asset classes in a portfolio rather than the total return of the portfolio as a whole. Since few own single asset portfolios over long periods of time, why care about single asset class returns? If an asset, even if it has negative long-term returns, increases the total portfolio returns (while often reducing portfolio volatility in the process), why isn't it a valued component of a portfolio?
I think it is mathematically impossible for an asset with negative long-term return to increase the risk-adjusted return of a portfolio, as measured by the Sharpe ratio, unless it has negative correlation--not zero, but actual negative correlation--with the portfolio it is being added to.

Now, even though it is theoretically possible, just for fun see if you can show me a real-world example, with PortfolioVisualizer or any other tool, of a period of time of, say, more than three years, over which adding an asset wih noticeably negative return made a noticable improvement, either in return or in Sharpe ratio, to a "traditional" portfolio as exemplified by, let's say, Vanguard LifeStrategy Moderate Growth. Or some similarly traditional fund or portfolio of your choice.
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Re: Vanguard: Please Offer a Gold ETF

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Re: Vanguard: Please Offer a Gold ETF

Post by patrick »

Why not jump ahead of the competition by opening the first uranium ETF?
Whakamole
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Re: Vanguard: Please Offer a Gold ETF

Post by Whakamole »

patrick wrote: Thu Sep 21, 2017 9:55 pm Why not jump ahead of the competition by opening the first uranium ETF?
Ahem: http://etfdb.com/etf/URA/
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Re: Vanguard: Please Offer a Gold ETF

Post by stlutz »

I agree with the OP. I want Vanguard to create ultra low cost competition where it doesn't currently exist. Gold is one. High yield bonds are another.

I say that as somebody who is neither looking for gold or high yield bonds.
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Re: Vanguard: Please Offer a Gold ETF

Post by nedsaid »

bjr89 wrote: Thu Sep 21, 2017 9:31 pm
cnh wrote: Thu Sep 21, 2017 8:06 pm
I am just raising the philosophical point that I want my asset classes to have return after inflation over time.
I always wonder why one focuses on the individual returns of asset classes in a portfolio rather than the total return of the portfolio as a whole. Since few own single asset portfolios over long periods of time, why care about single asset class returns? If an asset, even if it has negative long-term returns, increases the total portfolio returns (while often reducing portfolio volatility in the process), why isn't it a valued component of a portfolio?
There's a whole field of behavioral finance devoted to this. See conservatism bias, mental accounting bias, availability bias, status quo bias, regret aversion bias, among a plethora of others. It's why the beta to the market portfolio is a poor predictor of returns even though it should be a good predictor, while volatility is pretty good at predicting return. As Bridgewater once put it, and I'm paraphrasing, "we see people assessing return relative to risk everywhere, but not return and risk relative to correlation, so the CAPM and its prescription of buying the market portfolio ala Bill Sharpe is dangerous to your wealth, while nice in the classroom"
I have some sympathy for your views. The thing is, this gets to be pretty sophisticated stuff and this reminds me of the excellent thread on volatility drag. I agree it is a phenomenon in a mathematical and in a theoretical sense but I am not sure this really works in real life. In theory, returns can be boosted if you reduce volatility drag in a portfolio. In real life, I am dubious. I remember the pie fight between Rick Ferri and Larry Swedroe over the efficacy of commodities in a portfolio. Ferri thought that commodities didn't provide portfolio protection as advertised and Larry made arguments similar what bjr89 is making here. Larry has de-emphasized his commodity recommendation, he only holds commodities in certain factor funds such as what AQR runs. My untrained mind would say that Ferri won the argument particularly in light of Swedroe's changed recommendations. I suppose I could add the "I don't quite understand how all of that works" bias to your list above. My brain literally hurts thinking through this stuff.

My simple brain thinks that such asset classes like commodities or gold might reduce volatility drag on a portfolio and add to returns through a rebalancing bonus. My take is that sometimes you get a rebalancing bonus and sometimes you don't. This would take a very disciplined program of keeping your allocations to such things as gold and commodities in a portfolio constant, if you let your allocations drift, my suspicion is that you would lose your rebalancing bonus if indeed it exists at all.
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