The Sort of Conservative Approach to Miners ETFs

ETF Trends

There is no shortage of gold miners exchange traded funds from which to choose, but the two with enviable brand recognition are the Market Vectors Gold Miners ETF (GDX) and the Market Vectors Junior Gold Miners ETF (GDXJ) .

Up 18.2% and 28.5%, respectively, GDX and GDXJ are two of the top-performing industry ETFs this year, but as their names imply, there are important differences between the two funds.

While GDX offers a mix of small-, mid- and large- capitalization stocks, the $8.1 billion ETF is heavily tilted the largest gold miners. For example, Goldcorp (GG), Barrick (ABX), Newmont Mining (NEM) and Silver Wheaton (SLW) combine for about 40% of the ETF’s weight. On the other hand, GDXJ is more of a bet on potential. [Miners ETFs Ready for a Rally]

“There’s much more speculation involved in the GDXJ as that whole ‘potential to generate’ gives them a lot of leeway when they choose what stocks they’re buying for that ETF,” notes Cody Willard for MarketWatch.

To be sure, both GDX and GDXJ are momentum plays that can provide traders with big moves in condensed time frames. Traders that are familiar with GDX and GDXJ know it is not unusual for these ETFs to post intraday moves of 3%, 4% or even more. And the pair have been particularly action-packed in recent weeks as gold has rallied.

Over the past month, the SPDR Gold Shares (GLD) is up 5.3%, but GDX is up nearly triple that amount over the same time. GDXJ has almost quadrupled GLD’s one-month gain. [Investors Flock Back to Gold ETFs]

“I like the GDX here again, as I think it’s likely got some momentum coming toward it and gold, as equities lose some of their own momentum. Gold looks like it might finally get that pop near-term. I could see $1500/oz for gold by the end of the summer. Mining companies have been crushed over the last year or two, and I think they can easily get back to their 2010 highs in the next year or two,” adds Willard.

However, momentum as it pertains to miners ETFs is an important consideration. GDX has a three-year standard deviation of 30.2%, according to Market Vectors data. Underscoring an important difference between the two ETFs, GDXJ’s three-year standard deviation is almost 42%.

Market Vectors Gold Miners ETF

View photo

.
gdx

ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GLD.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Rates

View Comments (0)