ETF Trends
ETF Trends

With gold prices back to one-month highs, investors may consider alternative index-based gold miner ETFs to capitalize on the strengthening bullion.

The Sprott Gold Miners ETF (NYSEArca: SGDM) has increased 77.6% year-to-date while the Sprott Junior Gold Miners ETF (NYSEArca: SGDJ) advanced 110.1%.

Unlike traditional market cap-weighted funds, SGDM and SGDJ follow a factor-based or smart-beta indexing methodology that can potentially enhance returns.

Specifically, SGDM follows mid- to large-cap gold miners but the underlying index weights components based on quarterly revenue growth on a year-over-year basis and the quality of its balance sheet as measured by long-term debt to equity.

By focusing on balance sheet strength, the fund has greater exposure to companies with lower long-term debt to equity ratio, which have a greater ability to weather potential downturns.

The underlying index provides a “Transparent, rules-based methodology designed to overweight gold stocks with attractive investment merits relative to the other stocks in the index,” according to Sprott.

Additionally, SGDJ tracks small-cap gold miners but weighs its components based on revenue growth and price momentum.

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Unlike SGDM, SDGJ focuses on price momentum, which helps identify leading junior gold miners driven by factors like new discovery, mine development or joint ventures.

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