Waning ETF Confidence in Metal Miners Sector


Many industrial metals and miners rallied on the belief that China would support growth through stimulus measures, augmenting demand for metals while enticing investors to jump back in. Moreover, the depreciating U.S. dollar made USD-denominated resources cheaper for foreign buyers. The ongoing global low-yield environment also pushed investors toward more attractive assets, like commodities.

However, Beijing has played down expectations for further stimulus and the U.S. dollar is strengthening again on expectations the Federal Reserve will hike rates.

“I would say the recent softness has more to do with increased expectations that the Fed will raise interest rates in June and its effect on the U.S. dollar,” Tom Albanese, chief executive of mining giant Vedanta Resources PLC, told the WSJ, arguing that the rally just went “beyond what the fundamentals would suggest.”

Related: ETF Traders Turning Bearish on Gold Miners

ETF investors can also hedge against a pullback in the mining sector. For example, the ProShares UltraShort Basic Materials (NYSEArca: SMN) and ProShares Short Basic Materials (NYSEArca: SBM) take short or inverse positions on the broad materials sector. Additionally, ETF traders have also taken short precious metals miners through options like the Direxion Daily Gold Miners Bear 3X Shares (NYSEArca: DUST) and Direxion Daily Junior Gold Miners Index Bear 3X Shares (NYSEArca: JDST).

For more information on the miners sector, visit our metals & mining category.