Is the Gold Mining ETF Slump Over?


Despite the global worries of a further slump in commodity prices going forward, gold managed to finish a little higher last week, adding a few percentage points. This has pushed the precious metal above the $1,450/oz mark again thanks to bleak US growth data that raised hopes of the Fed keeping the current pace of bond purchase intact this year (read: Have We Seen the Bottom in Gold ETFs?).

This increase has also being felt in the ETF space with key products like GLD, IAU and SGOL adding similar percentages last week. While these performances have been good, events have been even better in the gold mining ETF space.

Products in this category generally trade as a leveraged play on the underlying commodities, so when gold prices are rising, these mining ETFs are truly the winners. 

In fact, the gold miner ETFs outpaced the broad market funds like SPY by a wide margin in the same timeframe. This is because revenues for gold mining companies are based on the prices of gold as these do not hedge their entire production.

The firms in the mining space are undertaking various steps to reverse their longer term trend of underperformance. These include managerial changes, cost cutting programs and increasing dividends (read: Gold Mining ETF Slump Continues).

Gold Miner ETFs in Focus

In this backdrop, we have highlighted a couple of the biggest precious metal mining ETF winners for investors looking for some of the short-term beneficiaries of the recent surge in gold prices (see more ETFs in the Zacks ETF Center):

Global X Gold Explorers ETF (GLDX)

This is by far one of the largest and actively traded funds in the mining space. The fund seeks to match the performance and yield of the Solactive Global Gold Explorers index, before fees and expenses. The stocks in the index comprise liquid international stocks involved in gold exploration.

The ETF has managed assets worth $29.9 million since its launch in November of 2010. It is widely spread across 20 small cap securities with none of them holding more than 6.4% of assets. Atac Resources, Lyndian International and Rubicon Mineral occupy the top three positions in the basket (read: The Guide to Broad Metals and Mining ETFs).

In terms of country exposure, Canada takes the top spot with 92.3% share, followed by United States (4.2%) and Australia (3.5%). The product added over 4% over the last week and yields higher at 8.55% in annual dividends. It has a relatively tight bid/ask spread given volumes of more than 100,000 shares per day and charges 65 bps in annual fees.

Global X Pure Gold Miners ETF (GGGG)

This fund tracks the Solactive Global Pure Gold Miners index, which measures the performance of the largest and most liquid gold mining companies globally. The product has amassed only $3.1 million in its asset base and is less liquid trading in a paltry volume of roughly 4,000 shares while charging a fee of 59 bps.

With holdings of 24 securities, the product is diversified across each asset class with 47% allocated to small caps, 39% to mid caps and the rest to large caps. It does not put more than 6% of its assets in a particular firm. The top three holdings include Polyus Gold, Alamos Gold and Randgold Resources.

The ETF has a tilt towards Canadian firms with more than two-fifths share in the basket while South African and United Kingdom often get double-digit allocations with 14% and 10%, respectively. GGGG was clearly the top performer in the gold mining space last week, gaining over 7% in the same timeframe (read: Time to Buy this Precious Metal ETF?). 

Market Vectors Junior Gold Miners ETF (GDXJ)

Launched in Nov 2009, this popular ETF looks to focus on the small and mid cap firms in the gold and silver mining industry. It does so by tracking the price and yield performance of the Market Vectors Junior Gold Miners Index as closely as possible.

In total, the ETF has 78 securities in its basket with 86% going to mid caps and the rest to small, giving the fund a weighted average market cap of $1.8 billion. The fund charges investors 54 bps a year, and has incredible volume of over 3.6 million shares a day.

In terms of holdings, Canada dominates at 58.1% of total assets followed by a hefty Australia weight of just under 25%. It should also be noted that the fund does a great job of spreading out assets with no one firm accounting for more than 4.2%. Argonaut Gold, Torex Gold Resources and China Gold are the top three elements in the fund’s portfolio.

The ETF gained 4.08% in the past week and pays an attractive dividend yield of 5.82%.

Global X Junior Miners ETF (JUNR)

This is the newest product in the space, initiated by Global X in Sep 2012 (read: Global X Debuts Junior Miners ETF (JUNR)). The ETF looks to give broad exposure to small cap firms in the mining world from across the globe.

The fund seeks to match the performance of the Solactive Global Junior Miners Index, which is a benchmark of small cap mining firms that are engaged in producing, smelting or refining of coal, copper, gold, iron, nickel, silver, titanium.

The product holds 94 securities in the basket and is highly diversified across individual securities, sectors and countries. Each security holds less than 3.5% of the assets, suggesting minimal company-specific risk and prevention of heavy concentration. 

Precious metals enjoy the top position in the basket comprising roughly half of the assets. The rest goes to broad metals and minerals, coal and alternative energy, steel and aluminum.

In terms of a national breakdown, Canada and Australia take the top two spots with 36% and 28% of assets, respectively. The U.S. (18%), the UK (5%), and China (3%) round out the top five, suggesting that a host of nations from around the globe receive sizable chunks in the portfolio.

Thanks to the newness of the product, it trades in small volumes of nearly 10,600 shares per day and has amassed $2.9 million in AUM. This illiquid nature raises the cost for this fund in the form of a wide bid/ask spread beyond the expense ratio of 0.69%. The ETF has, however, added a solid 6.11% last week and pays an above-market dividend of 17.70% (read: 3 High Yield ETFs for Your IRA).

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Read the analyst report on IAU

Read the analyst report on GLDX

Read the analyst report on GGGG

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