Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
Bigger isn't always better – and now the best minds at Sprott Asset Management have created a new gold miners ETF based on that principle that could deliver better performance than traditionally structured exchange-traded funds.
You see, gold miners ETFs, like Market Vectors Gold Miners Fund (NYSE Arca: GDX), typically take a simple market-cap-weighting approach.
But with larger miners saddled over the last few years with high debt, rising costs, and high sustaining costs for projects that are too costly to operate and are currently on "care and maintenance," this isn't necessarily the best strategy.
The new Sprott Gold Miners ETF (NYSE Arca: SGDM) offers a compelling alternative to traditional gold miners ETFs.
Here's how SGDM is different – and why it promises better results…
Sprott Gold Miners ETF Emphasizes Quality over Size
Rick Rule, head of Sprott US Holdings, explains that SGDM is performance-related, rather than market-cap-weighted. It tracks the Sprott Zacks Gold Miners Index, which is rules-based and rebalanced quarterly.
The Gold Miners Index seeks to identify about 25 gold stocks with the highest historical beta to the gold price. The weighting also depends on quarterly revenue growth year over year and balance sheet quality (long-term debt to equity).
Essentially, the rules-based method looks to identify quality rather than size and then allocates on that basis every three months.
In tracking the Sprott Zacks Gold Miners Index, SGDM seeks out the healthiest companies in the sector and adds them to the ETF's holdings.
As a result, current holdings show a high concentration in three names: Franco Nevada Corp. (NYSE: FNV) at 16%, Randgold Resources Ltd. (Nasdaq ADR: GOLD) at 15%, and Goldcorp Inc. (NYSE: GG) at 13%. What's also interesting is that besides Franco Nevada, the two other largest royalty/streamer companies, Royal Gold Inc. (Nasdaq: RGLD) at 4% and Silver Wheaton Corp. (NYSE: SLW) at 3%, make it into the top 10 holdings.
In addition to its focus on quality, there's another big reason for investors to love the Sprott Gold Miners ETF…
About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.