Can Gold Mining ETFs Keep Shining In 2H?

Gold has had a solid run in 2016, gaining 26% so far. In fact, gold has been the best performing asset, trumping major equity indices, investment grade and high yield bonds and commodity indices.

The World Gold Council in its last report had stated that gold demand grew 21% to 1,289.8 tons in the first quarter of 2016, the strongest Q1 on record. ETF inflows were at 363.7 tons, the highest since Q1 2009. Increasing safe haven demand due to a weakening greenback, slowdown in China, volatile equity markets and introduction of negative interest rates by several of the world’s central banks (including Japan) have turned the tables in favor of gold. Further, a delay in raising interest rates elevates demand for gold. (Read: 4 Reasons Why a Gold Rally Can Last)

U.K’s historic vote in late June to leave the EU added fire to gold, which was already on a roll this year. Gold ETF (NYSE:GLD) inflows were at $800 million on the day U.K.’s decision shook the markets, which led to a scurry for the safe-haven metal. Gold jumped 8% to $1,358 an ounce on Jun 24, the biggest increase in a day since 2008. The yellow metal had last crossed the $1,300 threshold in 2014.

Some analysts expect gold prices to cross $1,400 an ounce in the near future following the uncertainty regarding Brexit. Further, notwithstanding the upbeat June employment report, concerns about global economic growth, fresh signs of slowdown in the Chinese economy (manifested by recently reported weak manufacturing data) as well as economic and political uncertainties in a post-Brexit world are likely to prompt the Fed to hold off raising interest rates for now. A low interest rate environment elevates demand for gold, which produces no income but relies on price appreciation to lure investors.(Read: ETF Strategies for 2H)

Gold prices should also find support from physical demand from top consumers, India and China, during the festive season later this year. A good monsoon in India will also brighten prospects of a bigger harvest, which in turn is expected to boost the purchasing power of gold among farmers and support demand.

ETFs to Tap the Sector

Continuing weak global growth, dovish monetary policies and rising risks make gold a compelling investment this year. Below, we highlight the ETFs in this sector in greater detail for those seeking opportunities to make a gold-mining ETF play at this time.

VanEck Vectors Gold Miners ETF (NYSE:GDX) (GDX)

GDX has assets under management of $9.7 billion and a trading volume of roughly 46,430,595 shares a day. The fund charges an expense ratio of 52 basis points a year with a dividend yield of 0.38%.

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 has invested 61% of the asset base in the top 10 holdings.

Among individual holdings, top stocks in the ETF include Barrick Gold Corporation (ABX), Newmont Mining Corporation (NYSE:NEM) and Goldcorp Inc. (GG) with asset allocation of 11.16%, 9.31% and 7.14%, respectively.

VanEck 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 $3.61 billion in assets with a daily volume of 12,339,916 shares. It charges 56 basis points in annual fees with an annual dividend yield of 0.28%.

The fund’s top 10 holdings comprise 44% of its asset base. B2Gold Corp (BTG), Alamos Gold, Inc. (AGI) and First Majestic Silver Corp. (AG) occupy the top three positions in the fund with asset allocation of 5.38%, 4.97% and 4.56%, 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 November 2010, the ETF now manages assets worth $74.37 million. With a daily volume of 96,790 shares per day, the fund charges 65 bps in annual fees and has a dividend yield of 4.49%.

Its top 10 holdings comprise 66% of assets. First Mining Finance Corp. (FFMGF), Kaminak Gold Corp. (KMKGF) and OceanaGold Corporation (OCANF) command the top three positions in the basket representing 11.83%, 7.50% and 6.73% of net assets, respectively.

iShares MSCI Global Gold Miners ETF (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 the 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 $194.85 million in AUM and a daily volume of about 1,156,518 shares. It is also a low-cost pick with an expense ratio of 39 basis points a year. It has a dividend yield of 0.22%.

The fund debuted in January 2012 with the top 10 holding 71% of assets. The fund has 19 stocks in its basket and the top stocks include Barrick Gold Corporation (ABX), Newmont Mining Corporation (NEM) and Goldcorp Inc. (GG) with asset allocation of 15.6%, 12.9% and 9.52%, respectively.

PowerShares Global Gold & PrecMtls ETF (PSAU)

PSAU was launched in September 2008 and has been designed to track the NASDAQ OMX Global Gold & Precious Metals Index. The ETF has over $61.26 million in AUM and a daily volume of about 27,417 shares. It is a bit pricey, charging investors 75 basis points on an annual basis. The fund fetches a dividend yield of 0.08%.

This fund has a total holding of 23 stocks with the top 10 comprising 47% of assets. Among individual holdings, Barrick Gold, Newmont Mining and Goldcorp occupy the top three positions with an asset share of 8.27%, 7.88% and 7.37%, respectively.

Sprott Gold Miners ETF (SGDM)

Launched in July 2014, SGDM tracks the Sprott Zacks Gold Miners Index, which is a rules based index that assigns weightings on the basis of fundamental factors such as earnings and balance sheet growth.

SGDM currently has $237.42 million in AUM and an average trading volume of about 90,035 shares. It charges 57 basis points in annual expense and has a dividend yield of 0.65%.

The fund’s top 10 holdings comprise 74% of its asset base. Among individual holdings, Randgold Resources (LON:RRS) Limited (GOLD) (16.80%), Agnico Eagle Mines Limited (14.87%) and Goldcorp (13.91%) occupy the top three positions.

ALPS Sprott Junior Gold Miners ETF (SGDJ)

SGDJ seeks to deliver exposure to the Sprott Zacks Junior Gold Miners Index. This factor-based index aims to track the performance of small-capitalization gold companies whose stocks are listed on major U.S. and Canadian exchanges. The ETF has over $48.98 million in AUM and a daily volume of about 30,404 shares. It charges investors 57 basis points on an annual basis with a dividend yield of 0.35%.

This fund has a total holding of 15 stocks with the top 10 holdings comprising 57% of assets. Among individual holdings, Alamos Gold, Inc. (AGI), B2Gold Corp and Endeavour Mining Corporation (EDFMF) occupy the top three positions with an asset share of 9.75%, 9.36% and 6.06%, respectively.


VANECK-GOLD MNR (GDX): ETF Research Reports

VANECK-JR GOLD (GDXJ): ETF Research Reports

SPROTT-GOLD MNR (SGDM): ETF Research Reports

SPROTT-JR GLD M (SGDJ): ETF Research Reports

PWRSH-GLBL GOLD (PSAU): ETF Research Reports

ISHARS-M GL GLD (RING): ETF Research Reports

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