Miners Are an Attractive Substitute for Gold Exposure

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Dec 09, 2014

In this article, let´s take a look at Market Vectors Gold Miners ETF (GDX, Financial) which is a favorite ETF for David Einhorn (Trades, Portfolio). As of Dec. 31, 2013, hedge fund Greenlight Capital owned 8.8 million shares.

Market Vectors Gold Miners ETF

Market Vectors Gold Miners ETF is incorporated in the U.S. This vehicle tracks the performance of the Arca Gold Miners Index. It invests in materials stocks of all cap sizes around the world. When looking to the greatest allocation, we can see that this happens in the North American companies, principally in Canada, because most of the fund's holdings are based outside the United States.

Top holding list

The fund's holdings are primarily focused on gold mining, but it also includes some silver miners, such as Silver Wheaton Corp (SLW, Financial).

Let's see the fund´s holding list:

Materials % Wgt Market Value Position Price Currency
GOLDCORP INC 13,25 828.901.673 41.403.680 20,02 USD
BARRICK GOLD CORP 11,34 709.037.788 59.284.096 11,96 USD
NEWMONT MINING CORP 7,82 489.225.102 25.387.914 19,27 USD
FRANCO-NEVADA CORP 6,65 415.785.720 7.933.328 52,41 USD
SILVER WHEATON CORP 6,16 385.460.907 18.225.102 21,15 USD
NEWCREST MINING LTD 5,1 318.970.281 36.411.480 10,43 AUD
RANDGOLD RESOURCES LTD-ADR 4,92 307.767.394 4.638.544 66,35 USD
ELDORADO GOLD CORP 4,08 255.331.648 37.604.072 6,79 USD
AGNICO EAGLE MINES LTD 3,99 249.670.382 10.291.442 24,26 USD
ROYAL GOLD INC 3,72 232.403.833 3.399.705 68,36 USD
KINROSS GOLD CORP 3,01 188.059.038 60.082.760 3,13 USD
ANGLOGOLD ASHANTI-SPON ADR 3 187.368.718 21.267.732 8,81 USD
YAMANA GOLD INC 2,96 185.408.733 46.236.592 4,01 USD
GOLD FIELDS LTD-SPONS ADR 2,82 176.247.627 40.703.840 4,33 USD
CIA DE MINAS BUENAVENTUR-ADR 2,33 145.576.831 14.470.858 10,06 USD
NEW GOLD INC 1,87 116.664.944 26.454.636 4,41 USD
SIBANYE GOLD- SPON ADR 1,36 84.772.041 11.790.270 7,19 USD
ZIJIN MINING GROUP CO LTD-H 1,32 82.724.871 306.841.984 2,09 HKD
PAN AMERICAN SILVER CORP 1,28 80.097.917 7.954.113 10,07 USD
DETOUR GOLD CORP 1,08 67.671.218 8.285.900 9,29 CAD
B2GOLD CORP 1 62.363.511 35.636.292 1,75 USD
CENTERRA GOLD INC 0,97 60.881.606 12.410.901 5,58 CAD
ALAMOS GOLD INC 0,79 49.411.771 6.686.302 7,39 USD
CENTAMIN PLC 0,76 47.386.431 60.485.852 49,9 GBp
HECLA MINING CO 0,75 46.973.189 18.348.902 2,56 USD
AURICO GOLD INC 0,74 46.290.764 13.039.652 3,55 USD
IAMGOLD CORP 0,74 46.498.528 19.786.608 2,35 USD
RIO ALTO MINING LTD 0,69 43.322.885 17.352.036 2,84 CAD
SEMAFO INC 0,69 42.918.087 14.529.561 3,36 CAD
HARMONY GOLD MNG-SPON ADR 0,65 40.499.249 22.880.932 1,77 USD
G-RESOURCES GROUP LTD 0,58 36.412.183 1.390.514.944 0,2 HKD
PRIMERO MINING CORP 0,57 35.775.407 8.397.983 4,26 USD
ALACER GOLD CORP 0,51 32.033.620 15.246.127 2,39 CAD
OCEANAGOLD CORP-CDI 0,47 29.233.108 15.820.665 2,2 AUD
FIRST MAJESTIC SILVER CORP 0,41 25.661.808 6.168.704 4,16 USD
COEUR MINING INC 0,37 22.923.031 5.431.998 4,22 USD
SILVER STANDARD RESOURCES 0,37 23.275.431 4.239.605 5,49 USD
ZHAOJIN MINING INDUSTRY - H 0,37 23.442.166 45.891.000 3,96 HKD
MCEWEN MINING INC 0,32 20.112.039 15.712.531 1,28 USD
ARGONAUT GOLD INC 0,2 12.379.161 8.092.699 1,74 CAD
TOTAL 100 6.254.940.662 Â Â Â

Total Percentage of Top 10 Holdings: 67.03%

The index composition is reviewed and rebalanced quarterly.

Diversification rules

No single stock can make up more than 20% of the portfolio. In case a stock has more than 4.5% of the portfolio, it is capped at 50% of the index's total assets. Despite the rules, the top three holdings make up almost a third of assets (32.41%).

Principal Ratios

Principal Ratios %
Price to Cash Flow 7,17
Price to Book Ratio 0,95
Total Debt to Common Equity 36,4
Current Ratio 2,29
EV-to-EBIT 10,4
PEG 1,9

Other ETFs which constitute global gold securities investments: SPDR Gold Trust (GLD) and Market Vectors Junior Gold Miners ETF (GDXJ, Financial). For investors looking for direct exposure to gold, they should consider iShares Gold Trust (IAU, Financial).

Trailing total returns (as of 11/30/2014)

The fund has generated a total return of -18% in the last five years, -32.26% in the last three years, and -16.82% in the last year. But in November, as we can appreciate it, has an attractive return.

Period Market Return % NAV Return %
1-Month +6.68% +5.78%
3-Month -31.21% -30.81%
6-Month -18.40% -17.68%
Year-to-date -13.11% -12.67%
1-Year -16.82% -16.05%
3-Year -32.26% -32.09%
5-Year -18.00% -17.85%

In the next chart we can see the evolution in the past five years.

03May20171236581493833018.png

Final comment

If we analyze history, gold has been a good diversifier to a stock or bond portfolio, and gold miners look attractively valued relative to gold. So for those investors seeking to invest their money this ETF could be a good option.

Hedge fund gurus have also been active in the company. John Burbank (Trades, Portfolio) and Arnold Schneider (Trades, Portfolio) have taken long positions in the third quarter of 2014.

Disclosure: Omar Venerio holds no position in any stocks or funds mentioned.