Mining Sector Ideas

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>>> The Top 3 Gold Mining ETFs (GDX, GDXJ)


By Daniel Jark

October 14, 2016



http://www.investopedia.com/news/top-3-gold-mining-etfs-gdx-gdxj/?partner=YahooSA




For the current year, gold prices have increased from around $1061 on December 31, 2015 to $1255 on Oct. 12, 2016. This corresponds to a year-to-date (YTD) performance of around +18%. Mirroring the upturn gold has experienced in 2016, the gold mining industry has also experienced strong performance over the current year. As has been seen in the past, when markets are bullish, mining companies tend to perform higher than the precious metal commodities they produce. Thus, the stock price of gold mining companies will outperform the price of the physical gold they produce in a bull market. (See also: What Drives The Price Of Gold?)

We can observe this performance tendency by taking a look at the three largest gold mining ETFs: GDX ETF with an AUM of around $10.11 billion, followed by GDXJ ETF (AUM of ca. $4.03 billion) and NUGT ETF (AUM of ca. $1.33 billion) – as of Oct. 12, 2016.

The VanEck Vectors Gold Miners ETF (GDX) comes with an expense ratio of 0.52% and it seeks to track the NYSE Arca Gold Miners Index. Its YTD performance (NAV, as of Oct. 11, 2016) is +64.89% and thus, GDX outperforms gold’s physical value by around 46%. As it focuses on the larger, US-based firms, GDX tends to leave off some of the smaller mining companies or those that are traded on international markets. (ETF.com) The below-mentioned GDXJ ETF instead focuses on smaller-cap companies.

VanEck Vectors Junior Gold Miners ETF (GDXJ), aims to track the so-called MVIS Global Junior Gold Miners Index. Due to the fact that smaller miners are a bit riskier than larger, more well-established firms, the fund’s portfolio tends to be a bit riskier. Due to its higher risk potential, GDXJ comes with a greater return potential in a bullish gold market. We can observe this by looking at GDXJ’s YTD performance (NAV, as of Oct. 11, 2016) which is +95.15%.

As its name suggests, the Direxion Daily Gold Miners Index Bull 3x Shares ETF (NUGT), comes with three times leveraged exposure. The leveraged bet (300% exposure) is on NUGT’s target index, the NYSE Arca Gold Miners Index. Due to its leverage factor of 3x, its YTD performance (NAV, as of Oct. 11, 2016) is even higher at +130.64%. Having said this, the ETF comes with a huge downside risk potential, which can be seen by looking at the last month’s NAV performance (-41.79% as of Oct. 11, 2016 - indicated by ETF.com) in a rather downward trend.

The Bottom Line

GDX, GDXJ and NUGT provide three considerable ETF options for investors that seek to profit from the potential boost gold mining companies tend to experience in a bullish gold market. However, investors also need to be aware of the significant downside potential, particularly with leveraged ETFs. As always, interested investors should apply full due diligence and risk-tolerance assessments before making a final decision about any of these funds.

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