ETF Spotlight: Market Vectors Junior Gold Miners

Nov.11.10 | About: VanEck Vectors (GDXJ)

ETF Spotlight on Market Vectors Junior Gold Miners (NYSEArca: GDXJ), part of a weekly series.

Assets: $2 billion

Objective: Tracks the Market Vectors Junior Gold Miners Index, which holds small- and mid-cap companies that generate at least 50% of their revenues from gold or silver mining or hold real property that has the potential to produce that much revenue when developed.

Holdings: GDXJ invests 80% of its assets in companies involved in gold mining. Some of the top constituents include New Gold, Semafo, Alamos Gold and Allied Nevada Gold Corp.

What You Should Know

  • The top country in GDXJ is Canada, which gets 65.1% of the total weighting; the United States is 18.4%; Australia is 11.9%. South Africa, China and the United Kingdom are all represented in weightings under 2%.
  • GDXJ is primarily made up of mid-cap companies, which account for 62.4% of the fund’s total weight. Small-caps have a significant weighting at 46.2%.
  • The fund’s expense ratio is 0.50%.
  • GDXJ is another way for investors to get gold exposure; it might be ideal for investors who are uncomfortable owning funds that hold futures or physical metals, though the factors that move equity ETFs may be different than those that move funds more closely tied to a metal’s price.
  • That said, small-caps are riskier than large-caps; many of the companies that make up this space are in the earlier stages of development. That means, though, that they have greater potential for growth, too.

The Latest News

  • GDXJ has outperformed its large-cap sibling, Market Vectors Gold Miners (NYSEArca: GDX); it’s up 57.6% year-to-date, while GDX is up 32.8% in the same time period.
  • Gold prices are at record levels now, which is often to the benefit of mining companies as the price of gold far surpasses what it costs to mine it. We saw the effect of high profit margins in the sector this past earnings season.
  • The other benefit of this fund is that it’s primarily a small- and mid-cap offering; both asset classes are handily outperforming large-caps these days because they’re more nimble and better able to react to economic conditions.
  • Gold demand is at a high these days – investors want it for security, inflation protection, jewelry and more; as long as this situation remains in effect, the pressure is on for miners to sustain production.

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Gold Miner ETFs, Gold ETFs

Full disclosure: Tom Lydon’s clients own GDXJ.