Market Overview

As Mining ETFs Wilt, This One Stands Tall

Following glum performances in 2012, gold mining stocks and the corresponding ETFs are up to more of the same in early 2013.

A common criticism of gold mining equities and ETFs has been that the miners have not been, at least not in recent memory, participating in the upside of the yellow metal they extract from the earth.

That leaves gold miners vulnerable to increase downside potential when gold futures languish, a scenario that is playing out this year. For example, the SPDR Gold Shares (NYSE: GLD) was off 1.05 percent heading into the start of trading Monday.

Things were for worse for the Market Vectors Gold Miners ETF (NYSE: GDX), which is off 10 percent year-to-date and that includes Monday's modest gain.

The Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) has been better though that is not saying much. With Monday's one percent decline, GDXJ is now off 7.8 percent since the start of the year.

The situation is worse with silver. Year-to-date, the iShares Silver Trust (NYSE: SLV) is up 2.5 percent, but the Global X Silver Miners ETF (NYSE: SIL) has plunged over 10 percent.

Investors looking to participate in upside for miners do not need to look for. They just need to shift their view away from the usual suspects, also known as gold and silver miners because one small ETF has delivered big returns to start the year.

That fund is the First Trust ISE Global Platinum Index Fund (NASDAQ: PLTM). Buoyed by sharply higher platinum at the hands of more labor strife in South Africa, among other catalysts, platinum futures have surged to start 2013. The ETFS Physical Platinum Shares (NYSE: PPLT), which is backed by physical holdings of the white metal, have jumped over eight percent to start 2013.

The First Trust ISE Global Platinum Index Fund has been solid as well. Actually, PLTM's 4.7 percent year-to-date gain is downright stellar in comparison to the aforementioned gold and silver miners ETFs.

Some platinum miners produce more than just that metal. Those companies produce other platinum-group metals, including palladium. That has been a good thing this year as palladium prices have soared thanks to robust auto sales data in the U.S..

Palladium is used in the production of catalytic converters in most cars produced in China and the U.S., the world's two largest automobile markets. Improved auto sales have helped lift the ETFS Physical Palladium Shares (NYSE: PALL) by more than seven percent year-to-date.

Combined, bullishness in platinum and palladium futures is clearly helping PLTM. Investors might think that playing a country-specific with platinum-group exposure is a wise idea. In theory, it should be and the play would be the iShares MSCI South Africa Index Fund (NYSE: EZA) because South Africa is the world's largest platinum-producing nation and the second-largest palladium producer behind Russia.

That has not been the case as EZA has offered essentially no correlation to platinum and palladium futures this year as evidenced by the fund's 5.8 percent year-to-date tumble.

On the other hand, South Africa accounts for almost 36.4 percent of PLTM's country weight, by far that ETF's largest country exposure. That indicates PLTM has not been hampered by labor unrest in South Africa to this point.

Canada and the U.K. combine for over 30 percent of PLTM's weight, leaving a 7.25 allocation to Russia as the ETF's only remaining legitimate political risk. Russia could actually be a catalyst for PLTM going forward as some here.

Posted-In: Long Ideas News Sector ETFs Short Ideas Futures Commodities Events Global Best of Benzinga

 

Related Articles (EZA + GDX)

Around the Web, We're Loving...

Partner Network

Get Benzinga's Newsletters