NEW YORK (
) -- Market Vectors hopes the launch of the "junior" miners fund later this year will help draw attention to small- and mid-cap mining firms in the same way that the hugely popular
Market Vectors Gold Miners ETF
helped to draw attention to larger-cap miners.
The prospectus for the fund, which was filed on May 29, 2009, was recently amended to include a new list of fund components. The underlying Market Vectors Junior Gold Miners Index tracks stocks and depository receipts of domestic and foreign companies in gold and silver mining.
As gold prices soar to new highs in the U.S., physically backed ETFs like
SPDR Gold Shares
iShares Comex Gold
and equity-backed GLD have seen tremendous inflows. According to data from the National Stock Exchange, GLD had the highest net inflows of any U.S. ETF during the month of September.
ETFs are excellent vehicles to gain exposure to small companies while minimizing security specific risk, but even well balanced ETFs can be volatile. The top two holdings in the Junior Miners ETF Index,
Silver Standard Resources
Coeur d'Alene Mines
, have market caps of $1.55 billion and $1.7 billion, respectively. Small- and mid-cap stocks tend to be more volatile than their large cap peers, so it is likely that the new Junior Miners fund will be more volatile than veteran GDX.
Of course, the fortunes of gold miners are inextricably linked to the trajectory of gold prices. In that sense, the fund offers a not-so-indirect play on gold. Buying this fund gives you exposure that exhibits significantly greater leverage to gold prices than buying the commodity directly. Keep in mind, however, that leverage can cut both ways. If gold prices fail to rise, or if the cost of mining outpaces the rise of bullion prices, these companies will suffer.
While the underlying components in the Junior Miners portfolio have small market-caps, they have high trading volumes. Creation of the Junior Miners ETF, done in blocks of 50,000 shares, will likely not impact the trading of the underlying stocks. SSRI, the largest component in the new portfolio, comprises 6.74% of the index and has a three-month average daily trading volume of 1.1 million shares.
The heightened interest in gold, however, combined with the release of a new Junior Mining ETF will help to draw attention to the small companies that make up the fund. Representatives from Van Eck's Market Vectors Group expect that the fund will be released before the end of 2009, so now could be a good time to invest in top components.
The top 10 holdings in the new ETF, which make up approximately 46% of the fund, include SSRI, CDE,
Golden Star Resources
for a full list of the fund's components.
The success of GDX bodes well for the new Junior Miners ETF, which should be popular with risk-tolerant investors. Buying individual shares of low-priced stock can be extremely risky, but the nature of the portfolios in the ETFs helps to dampen the volatility of individual components.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion owns iShares Comex Gold.
Don Dion is president and founder of
, 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.