George Soros' $1m Gold Error

Legendary investor George Soros is paying more than he needs in Gold ETF costs...

THE MOST RECENT slew of 13-F filings from US investment funds threw up a curious fact, writes Lara Crigger at Hard Assets Investor.

Billionaire investor and avowed gold aficionado George Soros raised his fund's holding in the giant Gold ETF, the SPDR Gold Trust (NYSE ticker: GLD), by some 0.5% last quarter.

I'm unimpressed with Soros' choice. His investors would be better off if Soros held physical Gold Bullion instead, or at least another – less costly – Gold ETF.

With more than $52 billion in assets under management, GLD is the clear behemoth of gold investments. It's highly liquid and offers low spreads, and day to day, it tracks the price of gold pretty darn well. But for a full analysis on the long-term monetary benefit of holding bullion vs. GLD, check out Julian Murdoch's excellent analysis, "Is GLD A Good Deal?" from 2009. Because the numbers show that the longer you hold your gold allocation, the more money you save holding it in physical – not ETF – form.

Which is why I can't understand why a smart guy like Soros doesn't convert over to physical bullion like David Einhorn of Greenlight Capital did back in 2009. Clearly he's just sitting on his gold allocation, just like Einhorn. So why not save a little money besides?

Maybe Soros likes the flexibility that an ETF vehicle offers, and I won't argue with that. But if he is dead-set on holding only exchange-traded gold, then he could still be saving a boatload of cash.

Soros holds more than $738 million in exchange-traded vehicles, but his allocation to physical Gold ETFs make up more than 98% of that value. (He also holds $885,000 worth of the Market Vectors Gold Miners ETF, ticker: GDX.) In that 98%, the alternative US gold trust-fund – the iShares Gold Trust (IAU) – accounts for $69.5 milion, while the GLD soaks up nearly 10 times as much of his portfolio by value.

The two funds, however, are essentially the same: Both are highly liquid, secure physically backed ETFs. The main difference is 15 basis points: GLD's expense ratio is 40 basis points a year, while IAU's is only 25.

Run the math, and you'll see that not only does Soros pay more in expenses on his gold funds than most of us make in a year, but he spends most of it on the higher-cost GLD. If he converted the remaining 4,721,808 GLD shares over to IAU, he'd save almost $1 million in annual expenses.

For many of us, that alone would be a pretty compelling reason to switch. Granted, Soros may have good reasons for sticking with GLD over IAU. But cost alone can't be one of them.

The takeaway here is clear: Even when it comes to physically-backed ETFs, expenses can add up over time and make a real, tangible difference in your overall returns.

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