Guide to Precious Metals: Miners and Mutual Funds

An alternative to playing shiny metals is through the use of the various precious metals miner ETFs.
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NEW YORK (TheStreet) -- Aside from these physically backed and futures-backed products, another alternative to playing these shiny metals is through the use of the various precious metals miner ETFs available. Unlike SPDR Gold Shares (GLD) - Get Report and iShares Silver Trust (SLV) - Get Report, the ETFs listed below track a basket of companies rather than a physical stockpile or futures contracts and these funds are just like other equity-backed ETFs. In contrast, the mutual funds may hold some precious metal in the portfolio.

Mining ETFs Poised To Rebound

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Gold

Van Eck's Market Vectors Gold Miners ETF

(GDX) - Get Report

and

Market Vectors Junior Gold Miners ETF

(GDXJ) - Get Report

dominate the gold miner ETF market niche. Using GDX, investors can gain access to some of the most popular miners from around the world including

Barrick Gold

(ABX)

,

GoldCorp

(GG)

and

Newmont Mining

(NEM) - Get Report

. GDX carries a 0.55% expense ratio.

GDXJ, on the other hand, tracks the junior miners industry. This slice of the broad gold mining sector is made up of smaller and more volatile explorers and producers. Top holdings in GDXJ include

New Gold

(NGD) - Get Report

,

Alamos Gold

(AGIGF)

,

SEMAFO

(SEMFF)

, and

Hecla Mining

(HL) - Get Report

.

Similar to a traditional, broad market small-cap ETFs, investors typically view these funds as having stronger growth potential than their large-cap kin. GDXJ does boast a higher expense ratio than GDX, however, charging investors 0.60%

Silver

A newcomer in 2010,

Global X Silver Miners Fund

(SIL) - Get Report

is the first fund designed for investors looking for concentrated exposure to the largest silver mining companies. Although this fund tracks a basket of 25 different firms, its top four holdings largely drive the fund's performance. Together,

Silver Wheaton

(SWC)

,

Pan American Silver

(PAAS) - Get Report

,

Fresnillo

(FNLPF)

and

Industrias Penoles

(IPOAF)

account for half of the fund's portfolio. SIL carries a 0.65% expense ratio.

Although it has been available for only two months, SIL has still managed to gain a following, changing hands nearly 175 thousand times each day.

Platinum

Launched only a month before SIL, the

First Trust ISE Global Platinum Index

(PLTM) - Get Report

tracks a basket of firms responsible for mining the platinum group of metals (PGM). Ores falling under the PGM umbrella include platinum, palladium, osmium, iridium, ruthenium and rhodium.

Top positions include

Anglo Platinum

(AGPPY)

,

MMC Norilsk Nickel

(NILSY)

, Aquarius Platinum, and

Impala Platinum

(IMPUY)

.

PLTM charges investors 0.70%, making it the most expensive precious metals miner ETF available. Unlike SIL, PLTM has so far failed to gather much of a following. The fund currently has $6.4 million assets under management and has an average volume of only 13,000. Ultimately, for now this fund is too risky for investors looking to move in or out quickly.

Mutual Funds

Gold.

While any of the above gold-miner ETFs or products listed in

Guide to Precious Metals: Gold can provide investors with ample exposure to the yellow metal, investors desiring active management can opt for popular gold mutual funds like the

Toqueville Gold Fund

(TGLDX) - Get Report

or

Fidelity Select Gold Fund

(FSAGX) - Get Report

. Combining the strengths of GDX with GLD, TGLDX and FSAGX track not only physical gold, but also an impressive collection of gold miners.

Nearly two-thirds of the fund's portfolio is dedicated to its top 10 equity holdings. These companies include Barrick Gold, Newmont Mining, and Gold Corp. Miners, however, account for only 94% of the fund's total portfolio. The remaining 6% slice of FSAGX is dedicated to gold bullion.

As of the end of March, the Toqueville Gold Fund set aside 9% of its portfolio for exposure to physical gold, making it its largest single position. The remaining 91% of the portfolio is allocated across popular miners. The collection of miners representing the largest positions, however, is considerably different from the Fidelity fund. Top holdings in TGLDX include

Ivanhoe Mines

(IVN)

, Osisko Mining,

Rangold

(GOLD) - Get Report

and

Iamgold

(IAG) - Get Report

.

Thanks to its fund manager, John Hathaway, this fund has handedly outperformed the Fidelity fund over the past 10 years.

However, FSAGX should not be counted out. Rather, by charging 0.85%, FSAGX appeals to mutual fund investors looking to reduce costs. Comparatively, TGLDX carries a 1.5% expense ratio.

Additionally, investors should note that FSAGX and TGLDX have short-term redemption fees. FSAGX charges 0.75% for shares held less than 30 days, TGLDX charges 2% for shares held less than 120 days.

Precious Metals

. Investors looking for a broad play on the precious metal industry should look into the

U.S. Global Investors Gold and Precious Metals Fund

(USERX) - Get Report

. Launched in 1974, USERX is advertised as being the first no-load gold mutual fund in the U.S.

Although this title implies that the fund invests solely in the gold industry, as of the end of April, this fund had nearly 13% of its portfolio allocated across the silver and platinum industry as well.

Top holdings include Rangold, Redback Mining, and Agnico-Eagle Mines. Although the fund boasts over 60 different positions, the fund's top ten constituents represent close to half of the fund's total portfolio.

Although it has lagged both FSAGX and TGLDX recently, over the most recent five year period, USERX has come out on top. It has a 1.54% expense ratio and a 0.5% short-term trading fee for shares held less than 30 days.

Be sure to check out

part 1 and

part 2 of my guide to precious metals.

At the time of publication, Dion Money Management owned GDX and FSAGX.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.