Gold Exchange Traded Funds (ETFs) are becoming increasingly popular among investors in Nigeria due to their potential for diversification, liquidity, and ease of trading. This piece will examine the benefits, and disadvantages of gold exchange-traded funds (ETFs), how they operate, and why they are gaining popularity in Nigeria.
What are Gold ETFs?
Gold ETFs are securities that follow the price of gold and are traded like shares on stock exchanges. They provide the chance for investors to invest in gold without actually owning any physical gold.
The price of the ETFs is closely correlated with the price of gold because they contain gold bullion or derivatives that mimic gold bullion.
Why are Gold ETFs gaining traction in Nigeria?
Firstly, they offer investors an easy method to invest in gold, which is regarded as a safe haven asset during uncertain economic times.
Secondly, they give investors a chance to diversify their portfolios beyond conventional asset groups like stocks and bonds.
Finally, compared to purchasing physical gold, which requires storage and insurance, Gold ETFs are simple to trade, making them a more convenient way to invest in gold.
Benefits of Gold ETFs
1. Diversification
Gold ETFs offer investors an easy and convenient way to add exposure to gold to their portfolios, which can help diversify their holdings beyond traditional asset classes such as stocks and bonds. Just as gold has a diversification advantage, it can help lower overall portfolio risk.
>> Read more about Portfolio diversification.
2. Liquidity
Gold ETFs are highly liquid, which makes it easy for trading and also makes them a more practical method to invest in gold than purchasing physical gold. Due to the high liquidity, investors can quickly and fairly enter or exit positions in Gold ETFs.
3. Cost-effective
Gold ETFs have lower costs than actively managed funds, making them a more cost-effective way to invest in gold. This is due to the fact that gold ETFs exempt investors from having to buy and keep physical gold, which can be pricey and come with additional expenses like storage and insurance costs.
Disadvantages of Gold ETFs
1. Volatility
Gold ETFs are subject to market risk and price volatility, just like some other investments. Numerous variables, such as the state of the global economy, inflation, and international events, can affect the price of gold.
As a result, the value of Gold ETFs can change drastically, which may be unfavourable to investors who are risk-averse or have limited time to spend.
2. Management fees
Gold ETFs may have lower administration costs than actively managed funds, but these costs can eventually lower your returns. The management fees can vary among different ETFs, and it’s essential to compare the costs and choose a low-cost ETF to minimize expenses.
3. Counterparty risk
Some Gold ETFs are not backed by physical gold but by derivatives, such as futures or options transactions. This exposes investors to counterparty risk, which means that if the counterparty defaults, the ETF might not be able to keep its promise to follow the price of gold.
Before making an investment, you should learn about the Gold ETF’s base assets and the counterparty risk involved.
Which Gold ETF is the best in Nigeria?
Investors in Nigeria have access to a number of gold ETFs, including the NewGold ETF, Vetiva Griffin 30 ETF, and Stanbic IBTC ETF 30.
Before selecting a Gold ETF to invest in, it is crucial to perform a careful study and take into account variables such as expense ratios, liquidity, and track record.
How Do I Invest in Gold in Nigeria?
In Nigeria, there are several methods to invest in gold such as purchasing physical gold and purchasing Gold ETFs. To invest in Gold ETFs, you can open a brokerage account with a stockbroker that offers trading options in Gold ETFs listed on the Nigerian Stock Exchange.
List of ETFs in Nigeria
- NewGold ETF
- Vetiva Griffin 30 ETF
- Lotus Halal ETF
- Meristem Value ETF
- Quantum Zenith ETF
- Stanbic IBTC ETF 30
- United Capital Nigerian Real Estate ETF
- Chapel Hill Denham Nigeria Infrastructure Debt Fund ETF
- SCM Capital Growth ETF
It’s essential to conduct thorough research and consult with a financial advisor before investing in any ETFs.
Bottom Line
Gold ETFs offer investors in Nigeria an opportunity to diversify their portfolios and invest in a safe haven commodity. While there are benefits to investing in Gold ETFs, it’s essential to consider the drawbacks and understand the risks involved.
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