In recent years, gold miner ETFs have become some of the most popular investment tools, offering “indirect” exposure to gold prices without the headache of futures trading or physically holding the precious metal. Considering today’s rocky environment, gold mining stocks can be a more appealing option than investing in physical bullion since these securities tend to generate meaningful cash flows. But like every other company, the profitability of gold miners depends on the price of the products they are selling, meaning that spot gold prices are a major factor in the cash flows of the underlying company. And with the evolution of the ETF industry, there are now a number of products that allow investors to add gold miner exposure to their portfolio with ease. Below, we outline the three most popular gold miner ETFs and which one will fit your investment objectives [see also Jim Rogers Says: Buy Commodities Now, Or You’ll Hate Yourself Later].
Market Vectors TR Gold Miners ETF (GDX)
Quick Stats (7/19/2012)
- Total Assets: $7.9 billion
- Average Daily Volume: 12.8 million
- Expense Ratio: 0.53%
- In Depth: GDX Analyst Report and ETFdb Realtime Rating
GDX is the largest and one of the most popular gold miners ETFs available on the market. With an average daily volume of just over 16 million shares, its high liquidity is arguably its most alluring feature. With its inception in 2006, GDX was the first fund to offer investors access to the lucrative world of gold miners. Although the veteran product appears to be the most popular choice among investors, its underlying holdings do pose some significant drawbacks for those looking to make a pure play on the gold mining industry. Many of the stocks in GDX’s portfolio are of companies that are involved in the mining of numerous precious and industrial metals in addition to gold. Despite its relatively diluted exposure to the industry, GDX still remains one of the largest equity ETFs in the world and continues to accumulate assets [for more gold news subscribe to our free newsletter].
GDX is Right for You if: You are an investors looking for a liquid play on the gold mining sector.
Market Vectors Junior Gold Miners ETF (GDXJ)
Quick Stats (7/19/2012)
- Total Assets: $2.0 billion
- Average Daily Volume: 2.9 million
- Expense Ratio: 0.56%
- In Depth: GDXJ Analyst Report and ETFdb Realtime Rating
GDXJ is the only product on the market that is specifically designed to provide investors access to a growing niche segment of the gold miners industry: junior gold miners. As the name “junior” implies, the fund invests in small and mid capitalization gold mining companies. Although small cap stocks are more volatile than their large cap counterparts, they do offer significant growth opportunities and higher potential for lucrative returns. Since inception, GDXJ has accumulated over $2 billion in assets, making it the second largest gold miner ETF available. The fund’s most attractive feature is perhaps its juicy dividend yield of 5.72%: only three other funds in the category make distribution payments, with the second highest yield coming in substantially lower at 2.18%. But similar to GDX, however, GDXJ does not offer “pure” exposure to the gold mining industry as many of its underlying holdings are heavily involved in silver mining as well as other metals. Although this drawback might discourage some investors, GDXJ does maintain a much deeper and more balanced portfolio than GDX with its 85 holdings in comparison to GDX’s meager 31 stocks [see Why Warren Buffett Hates Gold].
GDXJ is Right for You if: You are looking for a small-cap play on the gold mining industry.
MSCI Global Gold Miners Fund (RING)
Quick Stats (7/19/2012)
- Total Assets: $29 million
- Average Daily Volume: 5,109
- Expense Ratio: 0.39%
- In Depth: RING Analyst Report and ETFdb Realtime Rating
Similar to GDX, this fund offers investors exposure to some of the largest gold mining companies in the world. Although there is a significant overlap in these two funds in terms of individual holdings, RING offers a deeper and slightly more diversified portfolio, consisting of just over 45 securities from a greater number of countries across the globe, including both developed and emerging markets. Additionally, RING holds the title of cheapest gold miner ETF with its expense ratio at a mere 0.39%. Despite being a newcomer to the market, making its debut in January of 2012, RING has already accumulated more that $33 million in assets and is quickly gaining popularity [see The Central Banks Are Buying Gold Like It's 1965].
SGOL is Right for You if: You are a cost conscious investor looking to save money while still allocating to this lucrative market segment.
Disclosure: No positions at time of writing.