Time to track the Micro Miners is back as more than handful of good small cap mining companies' share prices seems to be nearing their bottomed out prices. The precious metal market barring silver may most likely undergo some more shedding in the near future, although the long term upward trend for Gold, Platinum and Silver stays intact as per most commodity trackers. The biggest plus for this asset class is the Merger and Acquisition activity, where the smaller players have historically always reaped bigger benefit while getting acquired; naturally equity investors in these companies are the real winners with double digit gains.
An interesting way to invest in Junior Mining Companies is via the ETFs that are bound to a valid benchmark and have often beaten the markets and the commodity itself in terms of cumulative returns. The Indices which showcase a close to hundred stocks listed globally, enable investors to bet on most popular commodities in one sling shot, although a larger bet is on the popular commodities like Coal and Copper that make up for standard allocations of close to 50% for most, the industry staple Iron and evergreen precious metals Gold and Silver are also a major constituent. Other metals collectively account for close to 20% - 25% depending on the key strategy.
Vis-a-Vis Senior Miners, micro miners are more volatile but integral to portfolios that are long on commodities. The high risk high reward character of the small capitalization mining stocks aids in a better return on investment, however the exposure and entry must be under advisory supervision and a ratio of 70:30 seems optimum as senior anchorage is a must amid the choppy trades.
Portfolio diversity enhances with Market Traded products. In contrast to the direct equity investments, diversification is much vast and from around the globe. Although company wise research work and study is good but not mandatory with ETFs as the allocation is uniform and wide spread, hence risks due to company wise downside or a Geo political reason are heavily discounted due a standardized asset pattern. Additional these are fairly liquid capital vehicles and even present shorting and intraday options, when respective commodities are in a rally mode. The trade is conducted during normal market hours unlike the Mutual Funds, prices are on spot as against to the NAVs which come with a 24 hour lapse and trading volumes too, are good enough, even for panic sellers.
Salient points to mull over if looking to invest in junior mining companies includes an operational expense charged from all investors on an annual basis; these expenses may differ but are normally in the range of 0.50% - 0.69% annually. Another pre-requisite is a risk appetite for volatile products and that can be easily discounted with a strategic stake and long exposures.
The past years' performance of junior mining Index has been in tune with the performance of the commodity markets. The Gold has already hit a new seven month low in Feb '13 and Silver lows are nearing the historical averages. Investors in this class should be convinced with a further downside of American Dollar, which has an inversely proportional relationship with Micro Metal Miners and Explorers and should be sold on heavy demand forecast for most metals, which will in turn up-shoot the stock prices under supply and demand laws.
Average year to date returns [YTD] of various small cap mining funds range between a negative 10-18% for 2012 but pure plays like the one on gold and Silver have even seen haircuts raking between 30% - 50% in the past year. A collective mining product erases all apprehensions that are attached to the commodity markets and small cap mining companies. Whether this tamed volatility will lead to investment growth in 2013 or not, is an event that most of us are waiting for.
Global X Junior Miners ETF is abound to the name sake Solactive Global Index that tracks 97 small cap mining companies engaged in the life cycle of Iron, Copper, Gold, Silver, Nickel metals including other minerals and rare earth elements. Top three securities for JUNR as on 2/19/2013 are Ferrex PO PLC [3.14%], Fushan International [2.80%] and Alpha Natural Resources [2.52%]. Coeur de Alene Mines, Hecla Mining, Aurico Gold INC. and Alacer Gold Corp are the popular assets from the Gold and Silver universe sharing an almost equal weight age between 1.5% -2% among the other assets of Global X JUNR ETF. The fund operates at an annual expense of 0.69%.