New Van Eck ETF Tracks Gold Mining Juniors

Van Eck, the provider of one of the top-performing gold-focused ETFs this year, has launched a new fund today targeting the small- and mid-cap gold mining companies.

Junior Gold Miners ETF (NYSEArca: GDXJ) is the latest fund from Van Eck. The index gives exposure to small- and mid-cap companies that derive at least 50% of their revenues from gold or silver. The smaller mining companies that are featured in the index may have greater volatility and risk because of their size. On the flip side, there’s plenty of potential for growth in these smaller companies. It’s also worth noting that small- and mid-caps tend to do better in recovery periods, since they’re more nimble and quick to adapt as economic conditions shift.

Top country weightings are Canada, United States, Australia, South Africa, China and the United Kingdom. This ETF gives an alternative approach to investing in smaller or junior sized companies that have lots of growth potential while giving exposure to a dynamic subset of the gold mining industry. The ETF holds 38 junior mining companies and has an expense ratio of 0.60%.

Van Eck also offers the Market Vectors Gold Miners (NYSEArca: GDX), which is up 45.5% year-to-date, and has had a great 2009.

Gold has been a hit with investors this year due to the looming threat of inflation and the weakening of the U.S. dollar. This week, gold has hit a record price of $1100 per troy ounce.

Comments

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There are two ways to play this: trade shares of the ETF (which is what the vast majority of brokers and personal financial advisers will tell their clients, so a lot of shares will be traded), or trade shares of the stocks in the ETF's list of holdings. For the time being, I'm doing the latter. IPOs of ETFs are tricky, and ETFs (e.g., SMN) don't always perform like the label implies they will (Jeff's point, again).

If people buy a large volume of GDXJ shares, and they almost certainly will, it will pull up the demand/supply curve for many of these small miners, and share prices of the small miners’s stock will also be pulled upwards. GDXJ share prices should leverage GLD and GDX, all things being equal, and volume of GDXJ shares traded will increase the extent to which the individual small miner stocks leverage the price of gold and leverage the value of the gold miner sector.

In the same way GLD's bullion holdings raise the price of gold when lots of new shares of GLD are bought, an increase in the volume of GDXJ outstanding shares will raise the prices of small miner stocks. I’m betting that will happen in the next week or two, as this new ETF catches on, and it will pull up share prices of the junior miners.

Some of the stocks, like GRS and JAG and NXG, have terrific fundamentals right now, and they should do very well.

Nov 11 03:41 PM