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Going For The Gold With A New Gold Miners ETF

by
June 30, 2017 9:58 am
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Exchange-traded funds have popularized investing in gold miners and made that asset class more accessible to a broad swath of investors. For example, the two largest gold miners ETFs have a combined $12.1 billion in assets under management and are among the most heavily traded ETFs in the U.S.

The popularity of the largest legacy gold miners ETFs has, over the years, invited more competition in the space with the latest competitor arriving earlier this week. The US Global GO GOLD and Precious Metal Miners ETF (NYSE:GOAU).

Texas-based U.S. Global is the firm behind the popular U.S. Global Jets ETF (NYSE:JETS), the only dedicated airline ETF on the market. The U.S. Global GO GOLD and Precious Metal Miners ETF focuses on “companies engaged in the production of precious metals either through active (mining or production) or passive (owning royalties or production streams) means,” according to U.S. Global.

A Different Way Of Doing Business

GOAU follows the U.S. Global GO GOLD and Precious Metal Miners Index (GOAUX). The index can include large-, mid- and small-cap miners. It is also not confined to gold, as it can include palladium, platinum and silver miners. In what could be a long-term positive for investors, GOAU's underlying index excludes those companies that use debt to finance mining projects.

“To qualify for inclusion in the Index, Precious Metals Companies must have their common stock or a sponsored ADR listed on an exchange in Australia, Canada, Hong Kong, South Africa, the United Kingdom, or the United States,” according to a prospectus. “As described below, at the time of each rebalance of the Index, at least 30 percent of the Index will be allocated to Precious Metals Companies whose stock is listed on an exchange in the United States or Canada and that earn a majority of their revenue from gold and silver, and the top three such companies will each receive a 10 percent Index allocation.”

On a 12-month basis, GOAU's index outperformed the two largest gold miners ETFs 95 percent of the time, according to U.S. Global.

Holdings

The new ETF's holdings range in weight from about 1.9 percent to just under 10 percent. GOAU's largest holdings include Royal Gold, Inc (USA) (NASDAQ:RGLD), Franco Nevada Corp (NYSE:FNV) and Wheaton Precious Metals Corp (NYSE:WPM). Those stocks combine for almost 30 percent of GOAU's weight.

There are other potential advantages to GOAU's approach.

“Royalty companies can help investors manage many common risks associated with traditional producers,” said U.S. Global. “Because they’re not directly responsible for building and maintaining mines and other costly infrastructure, huge operating expenses can be avoided. They also hold highly diversified portfolios of mines and other assets, which helps mitigate concentration risk in the event that one of the properties stops producing.”

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