ETF Talk: Get Big Bling with Junior Gold Miners

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

With central banks around the world cutting interest rates and taking other measures to stimulate sluggish economies, precious metals have jumped. A recent pullback in the prices of certain precious metals funds offers investors another chance to consider buying a fund that is tied to either gold or silver. A fund that I have recommended successfully in the past is the Market Vectors Junior Gold Miner (GDXJ).

I still like the fund, but you always want to buy at a reasonable value rather than chase past gains. The strategy here with GDXJ would be to buy the fund after it pulls back from recent highs. This fund is designed to replicate, as closely as possible before fees and expenses, the price and yield performance of the Market Vectors Junior Gold Miners Index. The index is rules-based, modified market capitalization-weighted and float-adjusted.

Basically, GDXJ gives investors exposure to small- and medium-capitalization companies in the gold or silver mining industry by holding gold and precious metals mining stocks. In contrast to MarketVectors Gold Miners ETF (GDX), which tracks big mining companies, GDXJ offers exposure to the smaller mining companies that aren’t held in GDX.

You may want to hold both GDX and GDXJ, the way you might own both the Dow Jones Industrial Average and the Russell 2000. Both give you exposure to gold mining stocks, but GDXJ can be a bit more volatile because it focuses on the smaller public mining companies that tend to fluctuate more.

GDX holds the best-known and largest mining stocks, including its three biggest holdings: Barrick Gold, 13.63%; GoldCorp Inc., 12.18%; and Newmont Mining, 9.04%. GDXJ invests in lesser-known mining stocks. The top three holdings in GDXJ are B2Gold Corp., 3.70%; Perseus Mining Ltd., 3.38%; and St. Barbara Ltd., 2.75%. Indeed, sometimes good things do come in small packages.

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