Gold Mining ETF Investing 101
“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” – Warren Buffett
The legendary investor is known for his antagonistic take on gold as an investment option. Recently, gold has fallen from grace as an investment option due to the slump in prices which has somewhat tarnished its image as a gold haven. The words of Buffet never rang so true. However, it remains to be seen whether gold can be written off as having “no utility” as yet. (Read: 3 ETFs to play on Ukraine Turmoil)
2013: A Nightmare Year for Gold
The Delbrook Resources Opportunities Master Fund was up 9.2% for May, bringing its year-to-date return to 33%. Q1 2021 hedge fund letters, conferences and more Dellbrook is an equity long/ short fund that focuses exclusively on the metals and mining sector. It invests mainly in public companies focused on precious, base, energy and industrial metals Read More
Overall, gold suffered a 28% drop during the year, exiting at around $1,200 per ounce – the worst slump in more than three decades. A multitude of factors – the Federal Reserve’s taper or no taper confusion, conflict in Syria and the U.S. government‘s partial shutdown, and finally the taper call at year end – pushed gold prices downhill through the year.
Things Look Better in 2014
So far in 2014, gold prices have ranged from $1,221 per ounce to $1,372 per ounce, averaging $1,264 per ounce to date. The Fed’s announcement on Jan 29 to reduce asset purchases by another $10 billion a month to $65 billion kept the prices in check.
Dull economic numbers from the U.S. including lower manufacturing PMI and the economy adding only 113K jobs in January, well below expectations and home sales falling more than expected to an 18-month low in January led to the firming in prices.
Contrary to the 2013 lows, Gold mining ETFs have bounced back and are trending higher. Extreme low valuation has opened up buying opportunities for these ETFs. (Read: The best gold mining ETF for 2014)
ETFs to Tap the Sector
Below, we highlight the ETFs in this sector in greater detail for those seeking to make a gold-mining ETF play at this time. (See all Materials ETFs here)
Market Vectors Gold Miners ETF (GDX)
GDX is one of the popular gold ETFs on the market today with asset under management of $7.2 billion and a trading volume of roughly 38,773,090 shares a day. The fund charges an expense ratio of 52 basis points a year.
The ETF was formed on May 15, 2006, to track the NYSE Arca Gold Miners Index. The Index provides exposure to publicly traded companies worldwide that are involved primarily in gold mining, representing a diversified blend of small, mid and large-capitalization stocks. The fund holds 35 stocks in its basket, with a concentrated approach in the top ten holdings with 66.36% of the asset base invested in them.
Among individual holdings, top stocks in the ETF include Barrick Gold Corporation (ABX), Goldcorp andNewmont Mining Corporation (NEM) with asset allocation of 13.51%, 12.71% and 6.96%, respectively. (Read: Gold ETFs in focus on recent surge)
Market Vectors Junior Gold Miners ETF (GDXJ)
Another popular choice in the gold miners ETF market is GDXJ, a fund tracking the Market Vectors Junior Gold Miners Index, which provides exposure to small- and medium-capitalization companies that generate at least 50% of their revenues from gold and/or silver mining. The product has $1.45 billion in assets with a daily volume of 2,820,597 shares. It charges 55 basis points in annual fees. (See: Gold ETFs in focus on recent surge)
The fund has a total holding of 67 stocks with approximately 96% weightage toward small cap companies and the rest in middle cap companies. It is widely spread with none of the companies holding more than 4.07% of assets. SEMAFO Inc. (SMF.TO), McEwen Mining Inc. (MUX) and China Gold International Resources Corp Ltd (CGG.TO) occupy the top three positions in the fund with asset allocation of 4.07%, 3.92% and 3.87%, respectively.
Global X Gold Explorers ETF (GLDX)
The fund seeks to match the performance and yield of the Solactive Global Gold Explorers Index, which tracks companies actively involved in gold exploration.
Formed in Nov 2010, the ETF now manages assets worth $32.8 million. With a daily volume of 35,816 shares per day, the fund charges 65 bps in annual fees.
It is spread across 22 small cap securities with the top ten holdings comprising 56.2% of assets. ATAC Resources Ltd. (ATC.V), Rubicon Minerals Corporation (RBY)) and Continental Gold Limited (CNL.TO) command the top three positions in the basket representing 6.85%, 6.72% and 5.75% of the net assets respectively.
iShares MSCI Global Gold Miners (RING)
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI ACWI Select Gold Miners Investable Market Index. This index measures the equity performance of companies in both developed and emerging markets that derive the majority of their revenues from gold mining. The index also includes companies that do not hedge their exposure to gold prices.
The ETF has over $50.4 million in AUM and a daily volume of about 53,394 shares, while it is also a low-cost pick with expenses of 39 basis points a year. It has a dividend yield of 1.20%.
The fund debuted in Jan 2012 and currently has 38 companies in its kitty, with the top 10 holding 75% of the assets. The top stocks include Barrick Gold Corporation, Goldcorp, and Newmont with asset allocation of 17.85%, 16.7% and 8.99%, respectively.
PowerShares Global Gold & Prec Metals (PSAU)
PSAU was launched in Sep 2008 and has been designed to track the NASDAQ OMX Global Gold & Precious Metals Index. It has a trading volume of just 10,708 shares a day, but is a bit pricey as it charges investors 75 basis points on an annual basis. The fund represents a dividend yield of 0.45%.
This fund has a total holding of 65 stocks. Among individual holdings, Goldcorp, Barrick Gold and Newmont occupy the top three positions in the fund with an asset share of 8.21%, 8.19% and 6.57%, respectively.
Global X Pure gold Miners ETF (GGGG)
The ETF is linked to the Solactive Global Pure Gold Miners Index, which tracks the performance of the largest and most liquid gold mining companies globally.
Formed in Mar 2011, the ETF has assets worth $3.14 million. With a daily volume of more than 5,923 shares per day, the fund charges 59 bps in annual fees and has a dividend yield of 0.92%.
It is spread across 24 companies with the top 10 companies holding 57.68% of the total net assets. Sibanye Gold Limited (SBGL), Centamin Egypt Gold and AngloGold Ashanti Ltd. (AU) hold the top three positions representing 9.53%, 7.02% and 5.99% of the net assets, respectively.
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