Today we’re talking about E TF Gold Mining, i.e. stock portfolios that replicate the performance of a diversified basket of securities of companies in the gold sector, i.e. engaged in gold mining.
Thanks to the right ETF, you can make an investment in the sector at low costs and significantly reduce the related risks, which would be very high if you bought the shares of a single company.
Below, we see which ETFs to evaluate for a diversified and prudent investment in the mining industry.
Let’s start with the fact that investing in physical gold and gold companies is not the same thing.
The first case refers to the purchase of physical gold as a haven in times of market turbulence or indirect investment (even speculative) in raw materials.
Gold can become a source of income in two ways: with the negotiation of CFDs (Contracts for Difference) that have gold as their underlying; or by investing in ETC ( Exchange Traded Commodities ), passive funds that replicate the performance of raw materials.
Another story is the direct purchase of shares issued by a company in the mining industry or the purchase of shares in an ETF that tracks that sector.
In these cases, one is exposed not to the raw material, but to the companies that process that material – for example, the companies Barrick Gold (CA), Newmont Corporation (US), AngloGold Ashanti (ZA), Goldcorp Inc. (CA), Franco Nevada Corp. (CA) and Polyus Gold (RU).
Those who buy a Gold Mining ETF do so to have a versatile and liquid financial instrument in their portfolio (certainly more than a bar), to be exploited in the short-medium term to implement specific investment strategies, which leverage the strengths of the sector.
Although linked to the price of the raw material, a basket of shares also allows you to leverage other factors that have to do with the business, solidity, and capitalization of the companies that are part of it.
VanEck Vectors Gold Miners UCITS ETF
This ETF is the largest (€687m assets under management) and cheapest of the three (TER 0.53%); was launched in 2015.
It tracks the performance of the NYSE Arca Gold Miners Index, which includes companies in the global gold and silver mining industry.
The ETF is fully replicated, so it seeks to buy all constituents within the index. The policy of using the proceeds is accumulation, therefore they are reinvested automatically.
Within the ETF there are 54 companies, here are the top 5: Newmont Corp, Barrick Gold Corp, Franco-Nevada Corp, Newcrest Mining Ltd, and Wheaton Precious Metals Corp.
Most of the majors are big players in North America, but they have mines around the world, so their business is still international.
VanEck Vectors Junior Gold Miners UCITS
This second ETF is smaller than the previous one (€325m assets under management), but has a TER of 0.55%; it too was launched in 2015.
As the name implies, the fund invests exclusively in shares of small companies (81 in total) active in the mining industry. The replication of the index is total (MVIS Global Junior Gold Miners Index) and dividends are accumulated and reinvested in the fund.
It is a riskier and more volatile ETF than the previous one because it invests in companies that are smaller in size and have less solid business. At the same time, if we compare them, we see that the VanEck Vectors Junior Gold Miners ETF outperforms and makes higher earnings.
L&G Gold Mining UCITS ETF
The third and final ETF is the smallest and oldest of the three, as well as the most expensive – assets of €175m, launch date 2008, TER 0.65%.
It is based on the DAXglobal® Gold Miners index, which tracks the leading gold mining companies. The replication style is succinct so the ETF does not include all stocks.
The dividend policy is cumulative. In terms of performance, it is slightly less volatile and less profitable than the VanEck Vectors Gold Miners Fund.
