The NYSE Arca Gold Miners Index is undergoing a major revamp of its methodology, leading one analyst to offer cautionary words for advisors and investors alike.
Effective Sept. 20, the index is on one hand expanding its universe of securities to include non-U.S.-listed companies, and on the other it will begin excluding companies with less than $750 million in market capitalization from being considered for inclusion.
The index is also opening up its exposure to include the use of American depositary receipts and global depositary receipts as well as a “buffer zone” around the $750 million market-cap floor to reduce turnover during quarterly rebalances.
The buffer allows for any company already in the index that is over $450 million in market capitalization to remain in the index and not have to meet the initial inclusion criteria of $750 million, according to NYSE Euronext.
“We wanted to expand the index’s universe and capture international companies not listed in the U.S. to better represent the gold mining industry,” said Dwijen Gandhi, managing director, global index and exchange-traded products at NYSE Euronext. “The market cap of $750 million is to avoid potential overlaps with junior miners.”
The Market Vectors Gold Miners ETF (GDX) and the Direxion Daily Gold Miners Bull 3x Shares (NUGT) currently track that index. Gandhi declined to comment on the ETF issuer’s reactions to the revamp, but said index users have generally been “favorable” to the changes.
Elisabeth Kashner, IndexUniverse’s director of research, said that while adding new rules and liquidity thresholds is not a big deal, changing the selection process and opening up the index globally is more significant.
“We ignore this development at our peril,” she said. “If indexes can be retooled as funds can be, then it makes indexes less useful as yardsticks because it makes it harder for investors to understand their exposures over time.”
GDX, the biggest gold miner fund in an eight-ETF segment with some $6.4 billion in assets, has slid nearly 44 percent year-to-date, while the triple-leverage NUGT has now bled more than 88 percent since the beginning of the year.
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